Medtronic, Inc. Form 11-K dated April 30, 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
| x |
|
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended April 30, 2005
Or
| o |
|
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.: 1-7707
| A. |
|
Full title of the plan and the address of the plan, if different
from that of the issuer named below: |
MEDTRONIC, INC. EMPLOYEE STOCK OWNERSHIP AND
SUPPLEMENTAL RETIREMENT PLAN
| B. |
|
Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office: |
Medtronic, Inc.
710 Medtronic Parkway
Minneapolis, MN 55432
Required Information
| 1. |
Medtronic, Inc. Employee Stock Ownership and Supplemental Retirement Plan Financial Statements and Supplemental Schedule April 30, 2005 and 2004 |
| 2. |
Exhibit 23
Consent of Independent Registered Public Accounting Firm |
SIGNATURES
The Plan. Pursuant to the requirements of the
Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this
annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| |
MEDTRONIC, INC. EMPLOYEE STOCK OWNERSHIP AND SUPPLEMENTAL
RETIREMENT PLAN |
| |
| Dated: October 27, 2005 |
By: |
/s/ Janet S. Fiola
|
| |
|
Janet S. Fiola
Senior Vice President, Human Resources |
| |
Medtronic, Inc.
Employee Stock Ownership
and Supplemental
Retirement Plan
Financial Statements and Supplemental Schedule
April 30, 2005 and 2004
2
Medtronic, Inc.
Employee Stock Ownership and Supplemental Retirement Plan
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statements:
Statements of Assets Available for Benefits at April 30, 2005 and 2004
Statements of Changes in Assets Available for Benefits for the years ended April 30, 2005 and 2004
Notes to Financial Statements – April 30, 2005 and 2004
Supplemental Schedule:
Schedule H, line 4i – Schedule of Assets (Held at End of Year) at April 30, 2005
| Note: |
Other schedules required by 29 CFR Section 2520.103-10 of the
Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of
1974 have been omitted because they are not applicable. |
3
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of the
Medtronic, Inc. Employee Stock Ownership and
Supplemental Retirement Plan:
In our opinion, the accompanying statements of assets available for benefits
and the related statements of changes in assets available for benefits present fairly, in all material respects, the assets
available for benefits of the Medtronic, Inc. Employee Stock Ownership and Supplemental Retirement Plan (the
“Plan”) at April 30, 2005 and 2004, and the changes in assets available for benefits for the years then ended in
conformity with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Plan’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 the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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 our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of Assets (Held at End of Year) as of April 30, 2005 is presented
for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The
supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
October 21, 2005
4
Medtronic, Inc.
Employee Stock Ownership and Supplemental Retirement Plan
Statements of Assets Available for Benefits
(in 000’s)
|
April 30, |
|
|
|
2005 |
|
2004 |
|
|
|
|
| ESOP Assets |
|
|
| |
|
| |
|
| Investments: | | |
| Unallocated assets: | | |
| Plan’s Interest in the Medtronic, Inc. and Participating Employers Master Trust | | |
| Fund | | |
$ | 5 |
|
$ | 58,068 |
|
| Allocated assets: | | |
| Medtronic ESOP Fund | | |
| — |
|
| 686,237 |
|
| Medtronic Dividend Stock Fund | | |
| — |
|
| 3,481 |
|
| Plan’s Interest in the Medtronic, Inc. Master Trust Fund | | |
| 765,164 |
|
| — |
|
|
|
|
|
| Total ESOP assets | | |
| 765,169 |
|
| 747,786 |
|
|
|
|
|
| SRP Assets | | |
| Investments: | | |
| Mutual funds | | |
| 864,855 |
|
| 719,869 |
|
| Medtronic Common Stock Fund | | |
| — |
|
| 525,180 |
|
| Plan’s Interest in the Medtronic, Inc. Master Trust Fund | | |
| 720,813 |
|
| — |
|
| Medtronic Interest Income Fund | | |
| — |
|
| 229,682 |
|
| Participant loans receivable | | |
| 19,923 |
|
| 17,011 |
|
|
|
|
| |
| Total SRP assets | | |
| 1,605,591 |
|
| 1,491,742 |
|
|
|
|
|
| Assets available for benefits | | |
$ | 2,370,760 |
|
$ | 2,239,528 |
|
|
|
|
|
See accompanying notes to the financial statements.
5
Medtronic, Inc.
Employee Stock Ownership and Supplemental Retirement Plan
Statements of Changes in Assets Available for Benefits
(in 000’s)
|
Year Ended April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Additions: |
|
|
| |
|
| |
|
| Investment income: | | |
| Net appreciation in fair value of investments, excluding Plan Interests’ in Master | | |
| Trusts | | |
$ | 38,177 |
|
$ | 175,318 |
|
| Plan Interest in the Medtronic, Inc. and Participating Employers Master Trust | | |
| Fund investment income | | |
| 27 |
|
| 11,487 |
|
| Plan Interest in the Medtronic, Inc. Master Trust Fund investment income | | |
| 69,543 |
|
| — |
|
| Dividends | | |
| 17,721 |
|
| 15,476 |
|
| Interest | | |
| 988 |
|
| 10,583 |
|
|
| |
| |
| Total investment income | | |
| 126,456 |
|
| 212,864 |
|
|
| |
| |
| Contributions: | | |
| Participant | | |
| 123,859 |
|
| 112,253 |
|
| Employer (Note 1) | | |
| 35,672 |
|
| 1,012 |
|
|
| |
| |
| Total contributions | | |
| 159,531 |
|
| 113,265 |
|
| Transfers from other plan, net (Note 1) | | |
| — |
|
| 251,543 |
|
|
| |
| |
| Total additions | | |
| 285,987 |
|
| 577,672 |
|
|
| |
| |
| Deductions: | | |
| Benefits paid to participants | | |
| (154,695 |
) |
| (129,878 |
) |
| Administrative expenses | | |
| (60 |
) |
| (1,124 |
) |
|
| |
| |
| Total deductions | | |
| (154,755 |
) |
| (131,002 |
) |
|
| |
| |
| Net increase | | |
| 131,232 |
|
| 446,670 |
|
| Assets available for benefits: | | |
| Beginning of year | | |
| 2,239,528 |
|
| 1,792,858 |
|
|
| |
| |
| End of year | | |
$ | 2,370,760 |
|
$ | 2,239,528 |
|
|
| |
| |
See accompanying notes to the financial statements.
6
Medtronic, Inc.
Employee Stock Ownership and Supplemental Retirement Plan
Notes to Financial Statements
1. Description of the Plan
| |
The following description of the Medtronic, Inc. Employee
Stock Ownership and Supplemental Retirement Plan (the “Plan”) provides only general information. Participants should
refer to the Plan document for a complete description of the Plan’s provisions. |
| |
The Plan is a contributory defined contribution plan created by
Medtronic, Inc. (the “Company”). The Plan seeks to provide stock ownership benefits and assist employees to increase
retirement savings and financial security upon retirement. The Plan is available to all eligible regular full-time and part-time
employees immediately upon hire. The Plan qualifies under Section 401(a) of the Internal Revenue Code of 1986, as amended,
and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
|
| |
The Plan was amended effective April 30, 2001 to allow
employees elective deferrals under Code Section 401(k). The Plan now has two components: a Supplemental Retirement Plan (SRP)
component, which governs participant elective deferrals and an Employee Stock Ownership Plan (ESOP) component that governs
matching contributions related to the SRP and non-matching allocations of employer stock. |
| |
Plan Merger and Transfer of Plan Assets |
| |
The Compensation Committee of the Board of Directors of the
Company approved the merger of the Medtronic, Inc. and Participating Employers Supplemental Retirement Plan into the Plan on
March 8, 2001. Effective May 31, 2003, all remaining assets of the Medtronic, Inc. and Participating Employers
Supplemental Retirement Plan were transferred into the Plan. During fiscal year 2004, substantially all of the $251,543,000 assets
transferred into the Plan were from the Medtronic, Inc. and Participating Employers Supplemental Retirement Plan. |
| |
Administration of Plan Assets |
| |
The Qualified Plan Committee (the “Committee”) oversees
the administration of the Plan. The Committee appointed Vanguard Fiduciary Trust Company (“Vanguard Trust”) and US Bank
National Association (“US Bank”) as Trustees of the Plan assets (hereinafter collectively referred to as the
“Trustees”). Allocated ESOP assets and contributed SRP assets are held by Vanguard Trust and unallocated ESOP assets are
held by US Bank. Transactions are executed by the Trustees of the Plan, as directed by the Company in its capacity as Plan
Administrator. Vanguard has been appointed as Recordkeeper for the Plan and to provide participant services, education and
communication services. Vanguard maintains a separate account in the name of each participant in the Plan to record the assets
allocated to the participant and the earnings and losses thereon, and expenses credited thereto. |
| |
Participant
contributions are made to the Plan through payroll deductions into their SRP accounts.
Participants direct their contributions into eleven various investment
options offered by the Plan. The participants may change their investment decisions at any
time by contacting Vanguard Trust. However, any funds exchanged out of the Medtronic
Interest Income Fund must remain invested in another investment alternative for a period
of at least three months before being moved to the Vanguard Total Bond Market Index Fund.
Participants are also limited to two transfers a month in or out of the Medtronic Common
Stock Fund. The Medtronic Interest Income Fund and Medtronic Common Stock Fund became part
of the Medtronic, Inc. Master Trust effective May 1, 2004. Participating employees may
contribute 2% to 25% of eligible earnings on a pre-tax basis to the Plan, subject to
statutory limits. Effective January 1, 2004, participants who will obtain age 50 or older
are eligible to make catch-up contributions and effective May 1, 2004 all participants may
contribute 2% to 75% of eligible earnings to the Plan. |
| |
Participants
receive matching allocations of Medtronic, Inc. common stock into their ESOP Matching Accounts
in the Plan. The matching allocation is based on each participant’s contributions up
to 6% of eligible compensation, and ranges from 50% to 150% of these contributions,
depending upon the achievement of certain Company performance goals. Matching allocations
totaled approximately $57,180,000 and $51,930,000 for fiscal years 2005 and 2004,
respectively. In fiscal year 2005 a portion of the match was included in the allocation of
Medtronic, Inc. common stock from the unallocated shares at US Bank to the Vanguard
Trust and a portion was supplemented with Company cash contributions (See Notes 3 and 6).
In fiscal year 2004, the entire matching allocation was included in the allocation of
Medtronic, Inc. common stock. Participants are allowed to immediately diversify matching
allocated amounts to any of the SRP investment choices. |
7
| |
In addition to the matching allocation, participants receive
annual allocations to their ESOP Regular Accounts in the form of Medtronic, Inc. common stock. These annual allocations range
from 2.5% to 4.0% of qualified compensation, depending upon the achievement of certain Company performance goals. Active
participants may diversify a portion of their ESOP Regular Account at age 55 if they have been in the Plan for at least ten years.
Company ESOP contributions, net of forfeitures, were $36,582,000 and $33,198,000 for fiscal years 2005 and 2004, respectively.
|
| |
During
fiscal years 2005 and 2004, allocations of 2.50% of qualified compensation were allocated
to participants’ ESOP Regular Accounts. In addition, allocations of 3.63% and 3.58%
of qualified compensation were made to Plan participants’ ESOP Matching Accounts in
fiscal years 2005 and 2004, respectively. Forfeitures of allocated shares funded a portion
of the allocation requirements for both fiscal years 2005 and 2004. As of April 30, 2005 and 2004, $254,735,000 and $211,067,000, respectively, of the ESOP allocated assets
are invested in ESOP Matching
Accounts, $506,112,000 and $475,170,000, respectively, are invested in ESOP Regular
Accounts and $4,317,000 and $3,481,000, respectively, are invested in short-term
investments related to Medtronic, Inc. common stock dividends that have not yet been
assigned to participant accounts. Fiscal year 2005 was
the final year of the ESOP Regular contribution, as all of the remaining 1,120,741 ESOP
shares were allocated as of April 30, 2005. The employer match will be funded in cash by
Medtronic, Inc. beginning in fiscal year 2006. |
| |
Participants
are 100% vested in their contributions, including earnings and losses thereon, at all
times. Active participants vest in the Company contributions, including earnings and
losses thereon, at a rate of 20% per year and become fully vested in all Company
contributions after five years. Nonvested account balances of terminated employees are
forfeited. Participant forfeitures of nonvested amounts reduce Company contributions.
Forfeitures of $3,758,000 and $3,815,000 during fiscal years 2005 and 2004, respectively,
reduced employer contributions in those respective years. |
| |
An
active participant who has attained age 59½ may request a cash withdrawal for all
or a part of their SRP assets but are not allowed to take withdrawals from their ESOP
Accounts until retirement. |
| |
Upon
termination of employment, the participant must take a complete distribution if the value
of the participant’s vested account is $5,000 or less. If the value of the
participant’s vested account is greater than $5,000, the participant may elect to defer
distribution until a later date, take a cash withdrawal or request a direct rollover.
Participant funds invested in Medtronic, Inc. common stock may be taken in-kind or as
cash. Upon retirement from the Company, participants also have the option to take monthly
installments from the Plan. |
| |
Active
participants may take hardship withdrawals from their SRP Account if they incur immediate
and severe financial needs that cannot be met through other available sources in the Plan,
including the available loan provisions. Hardship withdrawals cannot be taken from the
ESOP Regular or ESOP Matching Accounts. The amount of the hardship withdrawal cannot
exceed the amount of the financial need and will be taxed upon distribution with a 10%
penalty tax imposed. |
| |
Upon
the death of a participant, the participant’s account becomes fully vested and is
paid to the designated beneficiary, or if no beneficiary has been designated, the balance
is paid according to the terms and conditions of the Plan. The beneficiary has the option
to take the Medtronic, Inc. common stock in-kind or as cash. |
| |
Participants
are limited to one loan outstanding at a time and can borrow up to 50% of their total
vested SRP balance not to exceed the maximum loan amount of $50,000. The minimum loan
amount is $1,000. Loans are repaid through payroll deductions in equal amounts, typically
over one to five years, with a maximum term of 30 years. The interest rate is calculated
as one percentage point over the prime rate in effect at US Bank on the first workday of
the month in which the loan is made and remains fixed for the duration of the loan. At
April 30, 2005, loans receivable were due at various dates through 2022, with
interest rates ranging from 4.75% to 10.50%. |
| |
In
the event the Plan is terminated and there is not a successor plan, participants would
become fully vested in the Company contributions. Benefits would be distributed at that
time in accordance with the Plan provisions. |
2. Summary of Significant Accounting Policies
| |
The
accompanying financial statements are prepared on the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States of America. |
| |
The
preparation of the financial statements, in conformity with accounting principles
generally accepted in the United States of America, 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. |
8
| |
Investment Valuation and Income Recognition |
| |
The Plan’s investments are stated at fair value, except for
its investment contracts held by the Medtronic Interest Income Fund, which are valued at contract value. Shares of mutual funds
(registered investment companies) are valued at quoted market prices, which represent the net asset value of shares held by the
Plan. The Plan’s Interest in both the Medtronic, Inc. and Participating Employers Master Trust Fund and the Medtronic, Inc.
Master Trust are valued at their unit closing price (comprised of the fair value of investments, except for investment contracts
which are valued at contract value, plus any uninvested cash position). The common shares of the Company held by the Medtronic
ESOP Fund and the Medtronic Common Stock Fund are valued at the quoted market price. All investments in the Medtronic Dividend
Stock Fund consist of money market securities which are valued at fair value based on quoted market prices. Participant loans
receivable are valued at estimated fair value, consisting of outstanding principal and related unpaid interest. |
| |
Purchases and sales of investments are recorded on a trade-date
basis. Interest income is accrued when earned. Dividend income is accrued on the ex-dividend date. Capital gain distributions are
included in dividend income. The Plan presents in the Statements of Changes in Assets Available for Benefits the net appreciation
(depreciation) in the fair value of its investments, which consists of realized gains and losses and the unrealized appreciation
(depreciation) on those investments. |
| |
Administrative
expenses are paid by the Plan. Such expenses consist of recordkeeping, trustee and account
maintenance fees. Participants with loans pay an origination and annual loan fee for loan
administration and maintenance from their respective Plan accounts. |
| |
Benefit payments are recorded upon distribution. |
| |
The
Plan provides for investment in the Company’s common stock and various participant
investment options in funds, which can invest in any combination of stocks, bonds, fixed
income securities, investment contracts, mutual funds and other investment securities.
Investment securities are exposed to various risks, such as interest rate, market, and
credit risks. Due to the level of risk and uncertainty, it is reasonably possible that
changes in risks could materially affect participants’ account balances and the
amounts reported in the Statement of Assets Available for Benefits and the Statement of
Changes in Assets Available for Benefits. |
| |
Concentration of Market Risk |
| |
As
of April 30, 2005 and 2004, approximately 52% and 57%, respectively, of the
Plan’s assets were invested in the common stock of Medtronic, Inc. A significant
portion of this concentration results from the allocated investments in the ESOP as of
April 30, 2005 and the allocated and unallocated investments in the ESOP as of April 30,
2004. The underlying value of the Medtronic Common Stock Fund, which is now part of the
Medtronic, Inc. Master Trust Fund, is entirely dependent on the performance of
Medtronic, Inc. and the market’s evaluation of such performance. It is
reasonably possible that changes in the fair value of Medtronic, Inc. common stock
could materially affect participants’ account balances and the amounts reported in
the Statement of Assets Available for Benefits and the Statement of Changes in Assets
Available for Benefits. |
3. Plan’s Interest in Master Trusts
| |
Medtronic, Inc. and Participating Employers Master Trust Fund |
| |
Unallocated
assets of the Plan are invested in the Medtronic, Inc. and Participating Employers Master
Trust Fund, which also includes certain assets of the Medtronic, Inc. and
Participating Employers Retirement Plan and the Medtronic, Inc. Retirement
Plan—401(h) Medical Account. US Bank is the Trustee for the unallocated assets
attributable to the Plan held in the Medtronic, Inc. and Participating Employers Master
Trust Fund and maintains a separate account for the unallocated Plan assets and
liabilities held within the Trust. As of April 30, 2005, the Plan assets within the
Medtronic, Inc. and Participating Employers Master Trust Fund included money market
securities and as of April 30, 2004, included Medtronic, Inc. common stock, with a
fair value of approximately $61,200,000, and money market securities. As of April 30,
2005, the Plan liabilities within the Medtronic, Inc. and Participating Employers Master
Trust Fund consist of Company shares at US Bank owed to the Vanguard Trust and other
accrued expenses and as of April 30, 2004, consist of a loan payable to
Medtronic, Inc. (see Note 5), Company shares at US Bank owed to the Vanguard Trust
and other accrued expenses. At April 30, 2005 and 2004, the Plan’s interest in
the net assets of the Medtronic, Inc. and Participating Employers Master Trust Fund was
less than 1% and 8%, respectively. |
| |
The
financial data of the Medtronic, Inc. and Participating Employers Master Trust Fund is as
follows: |
9
Medtronic, Inc. and Participating Employers Master Trust Fund
Statements of Net Master Trust Assets
(in 000’s)
|
April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Assets |
|
|
| |
|
| |
|
| Investments at fair value: | | |
| Short-term investment fund | | |
$ | 9,342 |
|
$ | 27,162 |
|
| U.S. government securities | | |
| 38,113 |
|
| 48,889 |
|
| Municipal debt securities | | |
| 1,570 |
|
| — |
|
| Corporate debt securities | | |
| 67,804 |
|
| 65,463 |
|
| Medtronic, Inc. common stock | | |
| 126,025 |
|
| 210,443 |
|
| Other common stock | | |
| 342,202 |
|
| 409,064 |
|
| Partnership units | | |
| 260,527 |
|
| 53,461 |
|
|
| |
| |
| Total investments | | |
| 845,583 |
|
| 814,482 |
|
| Interest and dividends receivable | | |
| 839 |
|
| 855 |
|
|
| |
| |
| Total assets | | |
| 846,422 |
|
| 815,337 |
|
|
| |
| |
| Liabilities | | |
| Accrued allocation of Medtronic, Inc. common stock | | |
| 59,063 |
|
| 85,128 |
|
| Accrued 401(h) benefits | | |
| 4,282 |
|
| 3,604 |
|
| Accrued expenses | | |
| 1,318 |
|
| 1,358 |
|
| Loan from Medtronic, Inc. | | |
| — |
|
| 6,811 |
|
|
| |
| |
| Total liabilities | | |
| 64,663 |
|
| 96,901 |
|
|
| |
| |
| Net Medtronic, Inc. and Participating Employers Master Trust assets | | |
$ | 781,759 |
|
$ | 718,436 |
|
|
| |
| |
Medtronic, Inc. and Participating Employers Master Trust Fund
Statements of Changes in Net Master Trust Assets
(in 000’s)
|
Year Ended April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Additions: |
|
|
| |
|
| |
|
| Investment income: | | |
| Interest | | |
$ | 8,005 |
|
$ | 7,497 |
|
| Dividends | | |
| 375 |
|
| 841 |
|
| Dividends on Medtronic, Inc. common stock | | |
| 1,980 |
|
| 3,465 |
|
| Net appreciation in fair value of investments | | |
| 34,983 |
|
| 72,784 |
|
|
| |
| |
| Total investment income | | |
| 45,343 |
|
| 84,587 |
|
| Employer contributions | | |
| 95,674 |
|
| 110,881 |
|
|
| |
| |
| Total additions | | |
| 141,017 |
|
| 195,468 |
|
|
| |
| |
| Deductions: | | |
| Interest expense | | |
| (194 |
) |
| (613 |
) |
| Benefits paid to participants | | |
| (13,960 |
) |
| (12,784 |
) |
| Administrative expenses | | |
| (4,477 |
) |
| (3,409 |
) |
| Net assets transferred to other trustees | | |
| (59,063 |
) |
| (85,128 |
) |
|
| |
| |
| Total deductions | | |
| (77,694 |
) |
| (101,934 |
) |
|
| |
| |
| Net increase | | |
| 63,323 |
|
| 93,534 |
|
| Net Medtronic, Inc. and Participating Employers Master Trust assets | | |
| Beginning of year | | |
| 718,436 |
|
| 624,902 |
|
|
| |
| |
| End of year | | |
$ | 781,759 |
|
$ | 718,436 |
|
|
| |
| |
10
| |
The
Medtronic, Inc. and Participating Employers Master Trust Fund investments (including gains
and losses on investments bought and sold during the year as well as unrealized
appreciation (depreciation)) changed in value as follows (in 000’s): |
|
Year Ended April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Net change in fair value of investments: |
|
|
| |
|
| |
|
| Short-term investment fund | | |
$ | (1,442 |
) |
$ | 510 |
|
| U.S. government securities | | |
| 506 |
|
| 40 |
|
| Municipal debt securities | | |
| 61 |
|
| — |
|
| Corporate debt securities | | |
| (793 |
) |
| 686 |
|
| Medtronic, Inc. common stock | | |
| 710 |
|
| 11,265 |
|
| Other common stocks | | |
| 10,951 |
|
| 46,324 |
|
| Partnership units | | |
| 24,990 |
|
| 13,959 |
|
|
| |
| |
| Net appreciation in fair value of investments | | |
$ | 34,983 |
|
$ | 72,784 |
|
|
| |
| |
| |
The
Plan’s interest in the total assets held in the Medtronic, Inc. and Participating
Employers Master Trust Fund and changes in assets during the periods are as follows (in
000’s): |
|
Year Ended April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Plan’s Interest in the Medtronic, Inc. and Participating Employers Master |
|
|
| |
|
| |
|
| Trust, beginning of year | | |
$ | 58,068 |
|
$ | 130,697 |
|
| Employer cash contributions | | |
| 973 |
|
| 1,012 |
|
| Investment income: | | |
| Interest and dividend income | | |
| 384 |
|
| 844 |
|
| Net appreciation (depreciation) in fair value of investments | | |
| (2,137 |
) |
| 7,809 |
|
| Dividends on Medtronic, Inc. common stock | | |
| 1,980 |
|
| 3,465 |
|
| Interest expense | | |
| (194 |
) |
| (613 |
) |
| Administrative expenses | | |
| (6 |
) |
| (18 |
) |
|
| |
| |
| Total investment income | | |
| 27 |
|
| 11,487 |
|
| Allocation of Medtronic, Inc. common stock | | |
| (59,063 |
) |
| (85,128 |
) |
|
| |
| |
| Plan’s Interest in the Medtronic, Inc. and Participating Employers Master | | |
| Trust, end of year | | |
$ | 5 |
|
$ | 58,068 |
|
|
| |
| |
| |
Medtronic, Inc. Master Trust Fund |
| |
Effective May 1, 2004, Plan assets previously invested in the
Medtronic Interest Income Fund, Medtronic Common Stock Fund, Medtronic Dividend Stock Fund and the Medtronic ESOP Fund were
transferred into the Medtronic, Inc. Master Trust Fund which also includes certain assets of The Medtronic Puerto Rico
Employees’ Savings and Investment Plan. Vanguard is the Trustee and Recordkeeper for the assets held in the Medtronic, Inc.
Master Trust Fund and maintains a separate account for the associated Plan assets and liabilities. As of April 30, 2005, the Plan
assets within the Medtronic, Inc. Master Trust Fund included Medtronic, Inc. common stock, with a fair value of approximately
$1,234,642,000. At April 30, 2005, the Plan’s interest in the net assets of the Medtronic, Inc. Master Trust was 99.5%.
|
| |
The Medtronic, Inc. Master Trust Fund is invested in four funds
— the Medtronic Interest Income Fund, Medtronic Common Stock Fund, Medtronic Dividend Stock Fund and the Medtronic ESOP Fund.
The Medtronic Common Stock Fund and Medtronic ESOP Fund are both invested in Medtronic, Inc. common stock. The Medtronic Dividend
Stock Fund consists of amounts accumulated from cash dividends received from the Medtronic ESOP Fund and temporarily invested in
money market securities. These funds will later be reinvested, into participant accounts, within the Medtronic ESOP Fund in the
form of Medtronic, Inc. common stock. The investments in the Medtronic Interest Income Fund consist of investment contracts issued
by financial institutions and contracts backed by investment-grade, fixed-income securities and bond mutual funds. These
investment contracts are valued at their contract values, which approximate fair value, as these investments have fully
benefit-responsive features. |
11
| |
The financial
data of the Medtronic, Inc. Master Trust Fund is as follows: |
Medtronic, Inc. Master Trust Fund
Statement of Net Master Trust Assets
(in 000’s)
|
April 30, |
|
| |
|
2005 |
|
| |
| Assets |
|
|
| |
|
| Investments at fair value: | | |
| Medtronic, Inc. common stock | | |
$ | 1,236,446 |
|
| Short-term investment fund | | |
| 4,317 |
|
|
| |
| Total investments at fair value | | |
| 1,240,763 |
|
| Investments at contract value: | | |
| Common/collective trust fund | | |
| 252,982 |
|
|
| |
| Total investments | | |
| 1,493,745 |
|
|
| |
| Net Medtronic, Inc. Master Trust assets | | |
$ | 1,493,745 |
|
|
| |
Medtronic, Inc. Master Trust Fund
Statement of Changes in Net Master Trust Assets
(in 000’s)
|
Year Ended April 30, |
|
| |
|
2005 |
|
| |
| Additions: |
|
|
| |
|
| Investment income: | | |
| Interest | | |
$ | 10,005 |
|
| Dividends on Medtronic, Inc. common stock | | |
| 7,078 |
|
| Net appreciation in fair value of investments | | |
| 53,593 |
|
| Administrative expenses | | |
| (822 |
) |
|
| |
| Total investment income | | |
| 69,854 |
|
| Employer contributions | | |
| 93,762 |
|
| Interfund Transfers, net | | |
| 1,330,129 |
|
|
| |
| Net increase | | |
| 1,493,745 |
|
| Net Medtronic, Inc. Master Trust assets | | |
| Beginning of year | | |
| — |
|
|
| |
| End of year | | |
$ | 1,493,745 |
|
|
| |
| |
The
Medtronic, Inc. Master Trust Fund investments (including gains and losses on investments
bought and sold during the year as well as unrealized appreciation (depreciation)) changed
in value as follows (in 000’s): |
|
Year Ended April 30, |
|
| |
|
2005 |
|
| |
| Net change in fair value of investments: |
|
|
| |
|
| Medtronic, Inc. common stock | | |
$ | 53,593 |
|
|
| |
| Net appreciation in fair value of investments | | |
$ | 53,593 |
|
|
| |
12
| |
The
Plan’s interest in the total assets held in the Medtronic, Inc. Master Trust Fund and
changes in assets during the period are as follows (in 000’s): |
|
Year Ended April 30, |
|
| |
|
2005 |
|
| |
| Plan’s Interest in the Medtronic, Inc. Master Trust, beginning of year |
|
|
$ | — |
|
| Investment income: | | |
| Interest income | | |
| 9,770 |
|
| Dividends on Medtronic, Inc. common stock | | |
| 7,069 |
|
| Net appreciation in fair value of investments | | |
| 53,520 |
|
| Administrative expenses | | |
| (816 |
) |
|
| |
| Total investment income | | |
| 69,543 |
|
| Interfund Transfers, net | | |
| 1,322,672 |
|
| Employer contributions | | |
| 93,762 |
|
|
| |
| Plan’s Interest in the Medtronic, Inc. Master Trust, end of year | | |
$ | 1,485,977 |
|
|
| |
4. Investments
| |
Individual investments
representing 5 percent or more of the Plan’s assets are as follows (in 000’s): |
|
April 30, |
|
|
|
2005 |
|
2004 |
|
| |
| |
| Medtronic ESOP Fund |
|
|
$ | * |
|
$ | 686,237 |
|
| Medtronic Common Stock Fund | | |
| * |
|
| 525,180 |
|
| Medtronic Interest Income Fund | | |
| * |
|
| 229,682 |
|
| Mutual funds: | | |
| Vanguard 500 Index Fund | | |
| 161,929 |
|
| 150,822 |
|
| Vanguard PRIMECAP Fund | | |
| 163,690 |
|
| 146,491 |
|
| Vanguard Wellington Fund | | |
| 156,674 |
|
| 124,892 |
|
| Plan’s Interest in Medtronic, Inc. Master Trust | | |
| 1,485,977 |
|
| * |
|
| |
| * Investments were transferred to the Medtronic, Inc. Master Trust Fund effective May 1,
2004. |
| |
The
net appreciation in the fair value of investments during fiscal years 2005 and 2004, other
than those held in the Medtronic, Inc. and Participating Employers Master Trust and the
Medtronic, Inc. Master Trust, including gains and losses on investments purchased and sold
as well as those held during the year was as follows (in 000’s): |
|
Year Ended April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Mutual funds |
|
|
$ | 38,177 |
|
$ | 108,873 |
|
| Medtronic ESOP Fund | | |
| — |
|
| 36,792 |
|
| Medtronic Common Stock Fund | | |
| — |
|
| 29,653 |
|
|
| |
| |
| Net appreciation in fair value of investments, excluding Plan Interests’ in | | |
| Master Trusts | | |
$ | 38,177 |
|
$ | 175,318 |
|
|
| |
| |
| |
The investments
in the Medtronic Interest Income Fund consist of investment contracts issued by financial
institutions and contracts backed by investment-grade, fixed-income securities
and bond mutual funds. These investment contracts are valued at their contract
values, which approximate fair value, as these investments have fully benefit-responsive
features. |
| |
There are no reserves against the contract values for credit risk of
contract issuers or otherwise. The average yield of the Medtronic Interest Income Fund was 4.33% for fiscal year 2004. The crediting interest rate of the
Medtronic Interest Income Fund was 4.24% as of April 30, 2004. The crediting interest rate is based on a formula agreed upon
with the issuer, which cannot be less than zero. Such interest rates are reviewed on a quarterly basis for resetting. |
13
5. ESOP Loan
| |
In December 1989, the Medtronic, Inc. and Participating Employers Master Trust borrowed $40.0 million from the Company on
behalf of the Plan and used the proceeds to purchase 18,932,938 shares (adjusted for subsequent stock splits) of the
Company's common stock. The loan from the Company was payable over a period not to exceed 20 years, ending on April 30, 2010
or at the point all shares have been allocated to participants. Interest was payable annually at a rate of 9.0%. The
Company made contributions to the Plan, which were used, in part, by the Plan to make principal and interest payments.
Contributions were based on debt service requirements less any dividends received by the Plan on the allocated and
unallocated shares of stock. Contributions were further adjusted to meet the annual targeted benefit level as determined by
the Company. Company cash contributions were $35,672,000 and $1,012,000 for fiscal years 2005 and 2004, respectively. The
outstanding loan balance due to Medtronic, Inc. as of April 30, 2005 and April 30, 2004 was $0 and $6,811,000, respectively,
as reflected in the Medtronic, Inc. and Participating Employers Master Trust Fund Statements of Net Master Trust Assets. |
6. Allocation Summary of Net ESOP Assets
| |
Statements of Net ESOP Assets |
|
April 30, 2005 |
|
April 30, 2004 |
|
| |
| |
|
Allocated |
|
Unallocated |
|
Total |
|
Allocated |
|
Unallocated |
|
Total |
|
| |
| |
| |
| |
| |
| |
| Assets: |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Investments at fair value: | | |
| Cash equivalents | | |
$ | — |
|
$ | 5 |
|
$ | 5 |
|
$ | — |
|
$ | 4,300 |
|
$ | 4,300 |
|
| Medtronic Dividend Stock Fund | | |
| 4,317 |
|
| — |
|
| 4,317 |
|
| 3,481 |
|
| — |
|
| 3,481 |
|
| Investment in Medtronic, Inc. | | |
| common stock | | |
| 760,847 |
|
| — |
|
| 760,847 |
|
| 686,237 |
|
| 61,200 |
|
| 747,437 |
|
|
| |
| |
| |
| |
| |
| |
| Total investments | | |
| 765,164 |
|
| 5 |
|
| 765,169 |
|
| 689,718 |
|
| 65,500 |
|
| 755,218 |
|
| Accrued income | | |
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| 1 |
|
| 1 |
|
|
| |
| |
| |
| |
| |
| |
| Total assets | | |
| 765,164 |
|
| 6 |
|
| 765,170 |
|
| 689,718 |
|
| 65,501 |
|
| 755,219 |
|
|
| |
| |
| |
| |
| |
| |
| Liabilities: | | |
| Loan payable | | |
| — |
|
| — |
|
| — |
|
| — |
|
| 6,811 |
|
| 6,811 |
|
| Accrued expenses | | |
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| 622 |
|
| 622 |
|
|
| |
| |
| |
| |
| |
| |
| Total liabilities | | |
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| 7,433 |
|
| 7,433 |
|
|
| |
| |
| |
| |
| |
| |
| Net ESOP assets | | |
$ | 765,164 |
|
$ | 5 |
|
$ | 765,169 |
|
$ | 689,718 |
|
$ | 58,068 |
|
$ | 747,786 |
|
|
| |
| |
| |
| |
| |
| |
| |
Statements
of Changes in Net ESOP Assets |
|
Year Ended April 30, 2005 |
|
Year Ended April 30, 2004 |
|
| |
| |
|
Allocated |
|
Unallocated |
|
Total |
|
Allocated |
|
Unallocated |
|
Total |
|
| |
| |
| |
| |
| |
| |
| Investment income: |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Interest and dividend income | | |
$ | 4,408 |
|
$ | 2,364 |
|
$ | 6,772 |
|
$ | 3,558 |
|
$ | 4,309 |
|
$ | 7,867 |
|
| Net appreciation (depreciation) | | |
| in fair value of investments | | |
| 29,886 |
|
| (2,137 |
) |
| 27,749 |
|
| 36,792 |
|
| 7,809 |
|
| 44,601 |
|
|
| |
| |
| |
| |
| |
| |
| Total investment income | | |
| 34,294 |
|
| 227 |
|
| 34,521 |
|
| 40,350 |
|
| 12,118 |
|
| 52,468 |
|
| Inter-plan transfers | | |
| (16,206 |
) |
| — |
|
| (16,206 |
) |
| (10,373 |
) |
| — |
|
| (10,373 |
) |
| Employer cash contributions | | |
| 34,699 |
|
| 973 |
|
| 35,672 |
|
| — |
|
| 1,012 |
|
| 1,012 |
|
| Allocation of Medtronic, Inc. | | |
| common stock* | | |
| 59,063 |
|
| (59,063 |
) |
| — |
|
| 85,128 |
|
| (85,128 |
) |
| — |
|
| Interest expense | | |
| — |
|
| (194 |
) |
| (194 |
) |
| — |
|
| (613 |
) |
| (613 |
) |
| Administrative expenses | | |
| (783 |
) |
| (6 |
) |
| (789 |
) |
| (609 |
) |
| (18 |
) |
| (627 |
) |
| Benefit payments | | |
| (35,621 |
) |
| — |
|
| (35,621 |
) |
| (36,533 |
) |
| — |
|
| (36,533 |
) |
|
| |
| |
| |
| |
| |
| |
| Net increase (decrease) | | |
| 75,446 |
|
| (58,063 |
) |
| 17,383 |
|
| 77,963 |
|
| (72,629 |
) |
| 5,334 |
|
| Beginning of year | | |
| 689,718 |
|
| 58,068 |
|
| 747,786 |
|
| 611,755 |
|
| 130,697 |
|
| 742,452 |
|
|
| |
| |
| |
| |
| |
| |
| End of year | | |
$ | 765,164 |
|
$ | 5 |
|
$ | 765,169 |
|
$ | 689,718 |
|
$ | 58,068 |
|
$ | 747,786 |
|
|
| |
| |
| |
| |
| |
| |
| |
| * Shares of Medtronic, Inc. common
stock totaling 1,120,741 and 1,779,147 were allocated in the fiscal years ended
April 30, 2005 and 2004, respectively, and are reflected in the tables above. | | |
14
7. Related Party Transactions
| |
During
the fiscal years ended April 30, 2005 and 2004, the Plan had transactions with
Vanguard Trust and US Bank, the Plan’s Trustees, which are allowed by the Plan and
the Internal Revenue Code. These transactions qualify as party-in-interest transactions,
which are exempt from the prohibited transaction rules. |
| |
Total
purchases of investments under the control of the Vanguard Trust for the fiscal years
ended April 30, 2005 and 2004 were $610,925,000 and $498,503,000, respectively, and
proceeds from sales with Vanguard Trust were $531,910,000 and $495,316,000, respectively.
Total purchases of investments under the control of US Bank for the fiscal years ended
April 30, 2005 and 2004 were $383,000 and $4,511,000, respectively, and proceeds from
sales with US Bank were $2,133,000 and $801,000, respectively. |
8. Reconciliation of Financial Statements to Form 5500
| |
The following
is a reconciliation of assets available for benefits per the financial statements to the
Form 5500 (in 000’s): |
|
April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Assets available for benefits per the financial statements |
|
|
$ | 2,370,760 |
|
$ | 2,239,528 |
|
| Amounts allocated to withdrawing participants | | |
| (11,984 |
) |
| (12,074 |
) |
|
| |
| |
| Assets available for benefits per the Form 5500 | | |
$ | 2,358,776 |
|
$ | 2,227,454 |
|
|
| |
| |
| |
The
following is a reconciliation of benefits paid to participants per the financial
statements to the Form 5500 (in 000’s): |
|
Year Ended April 30, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Benefits paid to participants per the financial statements |
|
|
$ | 154,695 |
|
$ | 129,878 |
|
| Add: Amounts allocated to withdrawing participants at end of year | | |
| 11,984 |
|
| 12,074 |
|
| Less: Amounts allocated to withdrawing participants at beginning of year | | |
| (12,074 |
) |
| (14,967 |
) |
|
| |
| |
| Benefits paid to participants per the Form 5500 | | |
$ | 154,605 |
|
| 126,985 |
|
|
| |
| |
| |
Amounts
allocated to withdrawing participants are recorded on the Form 5500 for benefit
claims that have been processed and approved for payment prior to April 30, but not
yet paid as of that date. |
9. Tax Status
| |
The
Plan received a favorable determination letter from the Internal Revenue Service on
February 12, 2004. Although the Plan has been amended since receiving the determination
letter, the Plan Administrator believes the Plan is currently designed and being operated
in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no
provision for income taxes has been included in the Plan’s financial statements. |
15
SUPPLEMENTAL SCHEDULE
Medtronic, Inc. Employee Stock Ownership and Supplemental Retirement Plan
Schedule H, line 4i – Schedule of Assets (Held at End of Year)
April 30, 2005
(in 000’s)
(a)
|
(b)
Identity of Issue, Borrower, Lessor or
Similar Party |
(c)
Description of Investment, Including
Maturity Date, Rate of Interest,
Collateral, Par or Maturity Value |
(d)
Cost |
(e)
Current Value |
|
|
|
|
|
| * |
Vanguard 500 Index Fund |
Registered Investment Company |
** |
$ 161,929 |
| * |
Vanguard PRIMECAP Fund |
Registered Investment Company |
** |
163,690 |
| * |
Vanguard Wellington Fund |
Registered Investment Company |
** |
156,674 |
| * |
Vanguard Windsor II Fund |
Registered Investment Company |
** |
115,074 |
| * |
Vanguard Explorer Fund |
Registered Investment Company |
** |
78,681 |
| * |
Vanguard International Growth Fund |
Registered Investment Company |
** |
64,224 |
| * |
Vanguard Total Bond Market Index Fund |
Registered Investment Company |
** |
44,636 |
| * |
Vanguard U.S. Growth Fund |
Registered Investment Company |
** |
38,920 |
| * |
Vanguard Extended Market Index Fund |
Registered Investment Company |
** |
41,027 |
| * |
Participant loans |
Interest at 4.75% to 10.50% due at |
| |
|
various dates through 2022 |
** |
19,923 |
|
Total Plan Investments, excluding the |
|
Plan’s Interest in the Medtronic, Inc. |
|
and Participating Employers Master |
|
Trust Fund and Medtronic, Inc. Master |
|
|
Trust Fund |
|
|
884,778 |
| |
|
Plan’s Interest in Medtronic, Inc. and |
|
Participating Employers Master Trust |
|
Fund |
|
|
5 |
| |
|
Plan’s Interest in Medtronic, Inc. |
|
Master Trust Fund – ESOP |
|
|
765,164 |
| |
|
Plan’s Interest in Medtronic, Inc. |
|
Master Trust Fund – SRP |
|
|
720,813 |
|
|
|
|
|
| |
|
|
|
$ 2,370,760 |
|
|
|
|
|
___________________________________
* Denotes party-in-interest
** Cost information is excluded, as it is not required for participant-directed investments
16