Medtronic Second Quarter Revenue Increases 8% to $3.838 Billion; Raises EPS Guidance for Current Fiscal Year
MDT | Quote | Chart | News | PowerRating -- --International revenue of $1.541 billion grew 13% on a constant currency basis; 12% as reported
--Worldwide ICD revenue growth of 6% on a constant currency basis; 4% as reported
--Worldwide CardioVascular revenue growth of 18% on a constant currency basis; 17% as reported
Medtronic, Inc. (NYSE:MDT) today announced financial results for its
second quarter of fiscal year 2010, which ended Oct. 30, 2009.
The company reported second quarter revenue of $3.838 billion, an 8
percent increase as reported and on a constant currency basis compared
to the $3.570 billion reported in the second quarter of fiscal year
2009. Reported second quarter net earnings were $868 million, or $0.78
per diluted share, increasing 59 and 63 percent, respectively, over the
same period in the prior year. As detailed in the attached table, after
adjusting for a litigation gain and the impact of adopting a new
accounting standard for non-cash interest expense on convertible debt
effective the beginning of fiscal year 2010, second quarter net earnings
and diluted earnings per share on a non-GAAP basis were $850 million and
$0.77, an increase of 12 percent and 15 percent, respectively, over the
same period in the prior year.
Revenue outside the United States of $1.541 billion grew 12 percent
compared to the same period last year, or 13 percent on a constant
currency basis, accounting for 40 percent of Medtronic's worldwide
revenue.
"Our solid financial performance this quarter was driven by consistent
execution across our diversified portfolio of businesses," said Bill
Hawkins, Medtronic chairman and chief executive officer. "We are
well-positioned to deliver on our commitments for the balance of our
fiscal year and to launch innovative new products to drive further
growth in the coming years."
Cardiac Rhythm Disease Management Cardiac Rhythm Disease
Management (CRDM) revenue of $1.278 billion grew 3 percent as reported
and on a constant currency basis. Revenue from implantable cardioverter
defibrillators (ICDs) was $754 million, while pacing revenue was $498
million in the quarter. Outside the United States, CRDM revenue grew 4
percent on a constant currency basis, driven by the growing success of
the AF Solutions business as well as solid growth in ICDs.
CardioVascular CardioVascular revenue of $696 million grew
17 percent as reported and 18 percent on a constant currency basis after
adjusting for an unfavorable $5 million foreign exchange impact. The
CardioVascular business continues to experience strong global growth
across the Coronary, Endovascular and Structural Heart Disease
divisions, which grew 18 percent, 28 percent and 11 percent,
respectively, on a constant currency basis. Continued adoption and use
of the Endeavor(R) Drug-eluting Stent in Japan following its commercial
launch earlier this fiscal year helped Coronary revenue grow to $369
million for the quarter.
Spinal Spinal revenue of $862 million grew 4 percent as
reported and on a constant currency basis. Both Core Spinal and
Biologics products saw positive growth in the quarter. Core Spinal
products, which include Kyphon, increased 2 percent on a constant
currency basis. Biologics revenue grew 12 percent on a constant currency
basis. Outside the United States, Spinal revenue grew 10 percent on a
constant currency basis driven by solid growth in China, Middle
East/Africa, Canada and Latin America.
Neuromodulation Neuromodulation revenue of $384 million grew
12 percent as reported and on a constant currency basis. Growth in
Neuromodulation continues to be driven by strong sales of Activa(R) PC and
RC Deep Brain Stimulation systems for movement disorders, and
InterStim(R) Therapy used to treat urinary and bowel incontinence.
Diabetes Diabetes revenue of $300 million grew 10 percent as
reported and 11 percent on a constant currency basis after adjusting for
an unfavorable $2 million foreign exchange impact. This growth was
driven by strong U.S. insulin pump and continuous glucose monitoring
(CGM) product sales, as well as strong sales of consumables in Europe.
International sales grew 10 percent on a constant currency basis over
the same quarter last year.
Surgical Technologies Surgical Technologies revenue of $224
million grew 5 percent as reported and 6 percent on a constant currency
basis after adjusting for an unfavorable $2 million foreign exchange
impact. Growth in the business was attributed to strong sales in the
monitoring product and power disposable product lines within the ENT
division. Service plans for Navigation equipment used in both brain and
spinal surgery procedures remained a positive contributor to revenue in
the second quarter as well.
Physio-Control Physio-Control revenue of $94 million grew 25
percent as reported and 24 percent on a constant currency basis after
adjusting for a favorable $1 million foreign exchange impact. Strong
international sales and sales of the LIFEPAK 15 monitor/defibrillator,
launched earlier in the fiscal year, contributed to favorable revenue
growth in the quarter.
Guidance The company today updated diluted earnings per
share guidance and revenue outlook for fiscal year 2010. The company
raised fiscal year 2010 EPS guidance to a range of $3.17 to $3.22, which
compares to the previous guidance of $3.10 to $3.20. This updated
guidance represents fiscal year 2010 EPS growth of 11 percent to 13
percent, after adjusting for $0.06 to $0.07 of acquisition dilution.
The company also reiterated its 5 percent to 8 percent constant currency
revenue growth outlook for the foreseeable future and believes that the
5 percent to 8 percent constant currency growth rate remains reasonable
for the second half of fiscal year 2010.
As in the past, all earnings per share ranges exclude any unusual
charges or gains that might occur during the fiscal year and the impact
of the non-cash charge to interest expense due to the change in
accounting rules governing convertible debt and includes $0.06 to $0.07
of acquisition dilution for the full fiscal year. In addition, EPS
guidance does not take into account any potential impact from a U.S.
medical device industry tax being proposed as part of broader U.S.
healthcare reform.
"I am pleased that we continue to perform well in this challenging
macroeconomic environment, which reflects the underlying resilience and
strength of Medtronic's diverse businesses across the globe," said
Hawkins. "Our businesses are focused on therapies for the most prevalent
chronic diseases, and we will deliver innovative solutions to physicians
and their patients around the world."
Webcast Information Medtronic will host a webcast today,
Nov. 24, at 8 a.m. EST (7 a.m. CST), to provide information about its
businesses for the public, analysts and news media. This quarterly
webcast can be accessed by clicking on the Investor Relations link on
the Medtronic home page at www.medtronic.com
and this earnings release will be archived at www.medtronic.com/newsroom.
Within 24 hours, a replay of the webcast and a transcript of the
company's prepared remarks will be available in the "Events and
Presentations" section of the Investor Relations homepage.
About Medtronic Medtronic, Inc., headquartered in
Minneapolis, is the world's leading medical technology company,
alleviating pain, restoring health and extending life for people with
chronic disease. Its Internet address is www.medtronic.com.
This press release contains forward-looking statements regarding our
operating momentum, new products and other developments, which are
subject to risks and uncertainties, such as competitive factors,
difficulties and delays inherent in the development, manufacturing,
marketing and sale of medical products, government regulation, general
economic conditions and other risks and uncertainties described in
Medtronic's Annual Report on Form 10-K for the year ended April 24, 2009.
Actual results may differ materially from anticipated results. Medtronic
does not undertake to update its forward-looking statements. Unless
otherwise noted, all comparisons made in this news release are on an "as
reported basis," not on a constant currency basis, and references to
quarterly figures increasing or decreasing are in comparison to the
second quarter of fiscal year 2009.
MEDTRONIC, INC.
REVENUE BY OPERATING SEGMENT - WORLD WIDE
(Unaudited)
($ millions)
FY09 FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY10
QTR 1 QTR 2 QTR 3 QTR 4 Total QTR 1 QTR 2 QTR 3 QTR 4 Total
REPORTED REVENUE :
CARDIAC RHYTHM DISEASE MANAGEMENT $ 1,303 $ 1,242 $ 1,169 $ 1,300 $ 5,014 $ 1,337 $ 1,278 $ - $ - $ 2,615
Pacing Systems 526 506 457 494 1,984 536 498 - - 1,033
Defibrillation Systems 764 724 694 780 2,962 775 754 - - 1,529
Other 13 12 18 26 68 26 26 - - 53
SPINAL $ 859 $ 829 $ 832 $ 881 $ 3,400 $ 915 $ 862 $ - $ - $ 1,777
Core Spinal 638 631 627 666 2,560 696 642 - - 1,338
Biologics 221 198 205 215 840 219 220 - - 439
CARDIOVASCULAR $ 631 $ 596 $ 565 $ 644 $ 2,437 $ 689 $ 696 $ - $ - $ 1,385
Coronary 349 315 296 332 1,292 353 369 - - 722
Structural Heart 195 186 170 195 747 218 206 - - 424
Endovascular 87 95 99 117 398 118 121 - - 239
NEUROMODULATION $ 348 $ 343 $ 354 $ 389 $ 1,434 $ 373 $ 384 $ - $ - $ 757
DIABETES $ 269 $ 272 $ 277 $ 296 $ 1,114 $ 295 $ 300 $ - $ - $ 594
SURGICAL TECHNOLOGIES $ 202 $ 213 $ 207 $ 235 $ 857 $ 227 $ 224 $ - $ - $ 451
PHYSIO-CONTROL $ 94 $ 75 $ 90 $ 84 $ 343 $ 97 $ 94 $ - $ - $ 192
TOTAL $ 3,706 $ 3,570 $ 3,494 $ 3,829 $ 14,599 $ 3,933 $ 3,838 $ - $ - $ 7,771
ADJUSTMENTS :
CURRENCY IMPACT (1) $ - $ - $ - $ - $ - $ (145 ) $ (16 ) $ - $ - $ (161 )
COMPARABLE OPERATIONS (1) $ 3,706 $ 3,570 $ 3,494 $ 3,829 $ 14,599 $ 4,078 $ 3,854 $ - $ - $ 7,932
(1) Medtronic management believes that in order to properly understand
Medtronic's short-term and long-term financial trends, investors may
wish to consider the impact of foreign currency translation on revenue.
In addition, Medtronic management uses results of operations before
currency translation to evaluate the operational performance of the
Company and as a basis for strategic planning. Investors should consider
these non-GAAP measures in addition to, and not as a substitute for,
financial performance measures prepared in accordance with GAAP.
Note: The data in this schedule has been intentionally rounded to the
nearest million and therefore the quarterly revenue may not sum to the
fiscal year to date revenue.
MEDTRONIC, INC.
REVENUE BY OPERATING SEGMENT - US
(Unaudited)
($ millions)
FY09 FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY10
QTR 1 QTR 2 QTR 3 QTR 4 Total QTR 1 QTR 2 QTR 3 QTR 4 Total
REPORTED REVENUE :
CARDIAC RHYTHM DISEASE MANAGEMENT $ 731 $ 702 $ 666 $ 742 $ 2,841 $ 762 $ 721 $ - $ - $ 1,483
Pacing Systems 233 228 206 228 896 247 221 - - 468
Defibrillation Systems 492 472 454 505 1,923 508 492 - - 1,000
Other 6 2 6 9 22 7 8 - - 15
SPINAL $ 682 $ 647 $ 658 $ 691 $ 2,678 $ 712 $ 662 $ - $ - $ 1,374
Core Spinal 474 463 464 488 1,889 507 457 - - 963
Biologics 208 184 194 203 789 205 205 - - 411
CARDIOVASCULAR $ 253 $ 235 $ 224 $ 265 $ 976 $ 260 $ 252 $ - $ - $ 512
Coronary 120 94 88 108 407 103 106 - - 209
Structural Heart 92 90 85 96 364 98 87 - - 185
Endovascular 41 51 51 61 205 59 59 - - 118
NEUROMODULATION $ 238 $ 249 $ 254 $ 279 $ 1,019 $ 265 $ 272 $ - $ - $ 537
DIABETES $ 167 $ 180 $ 188 $ 200 $ 736 $ 193 $ 201 $ - $ - $ 394
SURGICAL TECHNOLOGIES $ 127 $ 136 $ 132 $ 149 $ 545 $ 142 $ 140 $ - $ - $ 282
PHYSIO-CONTROL $ 51 $ 47 $ 50 $ 45 $ 192 $ 57 $ 49 $ - $ - $ 106
TOTAL $ 2,249 $ 2,196 $ 2,172 $ 2,371 $ 8,987 $ 2,391 $ 2,297 $ - $ - $ 4,688
ADJUSTMENTS :
CURRENCY IMPACT $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
COMPARABLE OPERATIONS $ 2,249 $ 2,196 $ 2,172 $ 2,371 $ 8,987 $ 2,391 $ 2,297 $ - $ - $ 4,688
Note: The data in this schedule has been intentionally rounded to the
nearest million and therefore the quarterly revenues may not sum to the
fiscal year to date revenue.
MEDTRONIC, INC.
REVENUE BY OPERATING SEGMENT - INTERNATIONAL
(Unaudited)
($ millions)
FY09 FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY10
QTR 1 QTR 2 QTR 3 QTR 4 Total QTR 1 QTR 2 QTR 3 QTR 4 Total
REPORTED REVENUE :
CARDIAC RHYTHM DISEASE MANAGEMENT $ 572 $ 540 $ 503 $ 558 $ 2,173 $ 575 $ 557 $ - $ - $ 1,132
Pacing Systems 293 278 251 266 1,088 289 277 - - 565
Defibrillation Systems 272 252 240 275 1,039 267 262 - - 529
Other 7 10 12 17 46 19 18 - - 38
SPINAL $ 177 $ 182 $ 174 $ 190 $ 722 $ 203 $ 200 $ - $ - $ 403
Core Spinal 164 168 163 178 671 189 185 - - 375
Biologics 13 14 11 12 51 14 15 - - 28
CARDIOVASCULAR $ 378 $ 361 $ 341 $ 379 $ 1,461 $ 429 $ 444 $ - $ - $ 873
Coronary 229 221 208 224 885 250 263 - - 513
Structural Heart 103 96 85 99 383 120 119 - - 239
Endovascular 46 44 48 56 193 59 62 - - 121
NEUROMODULATION $ 110 $ 94 $ 100 $ 110 $ 415 $ 108 $ 112 $ - $ - $ 220
DIABETES $ 102 $ 92 $ 89 $ 96 $ 378 $ 102 $ 99 $ - $ - $ 200
SURGICAL TECHNOLOGIES $ 75 $ 77 $ 75 $ 86 $ 312 $ 85 $ 84 $ - $ - $ 169
PHYSIO-CONTROL $ 43 $ 28 $ 40 $ 39 $ 151 $ 40 $ 45 $ - $ - $ 86
TOTAL $ 1,457 $ 1,374 $ 1,322 $ 1,458 $ 5,612 $ 1,542 $ 1,541 $ - $ - $ 3,083
ADJUSTMENTS :
CURRENCY IMPACT (1) $ - $ - $ - $ - $ - $ (145 ) $ (16 ) $ - $ - $ (161 )
COMPARABLE OPERATIONS (1) $ 1,457 $ 1,374 $ 1,322 $ 1,458 $ 5,612 $ 1,687 $ 1,557 $ - $ - $ 3,244
(1) Medtronic management believes that in order to properly understand
Medtronic's short-term and long-term financial trends, investors may
wish to consider the impact of foreign currency translation on revenue.
In addition, Medtronic management uses results of operations before
currency translation to evaluate the operational performance of the
Company and as a basis for strategic planning. Investors should consider
these non-GAAP measures in addition to, and not as a substitute for,
financial performance measures prepared in accordance with GAAP.
Note: The data in this schedule has been intentionally rounded to the
nearest million and therefore the quarterly revenue may not sum to the
fiscal year to date revenue.
MEDTRONIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended Six months ended
October 30, October 24, October 30, October 24,
2009 2008 2009 2008
(in millions, except per share data)
Net sales $ 3,838 $ 3,570 $ 7,771 $ 7,276
Costs and expenses:
Cost of products sold 922 883 1,888 1,738
Research and development expense 369 326 739 650
Selling, general and administrative expense 1,323 1,263 2,691 2,581
Restructuring charges - - 62 96
Certain litigation charges, net (70 ) 266 374 266
Purchased in-process research and development (IPR&D) charges - 18 - 18
Other expense, net 130 143 224 294
Interest expense, net 54 48 121 95
Total costs and expenses 2,728 2,947 6,099 5,738
Earnings before income taxes 1,110 623 1,672 1,538
Provision for income taxes 242 76 358 268
Net earnings $ 868 $ 547 $ 1,314 $ 1,270
Basic earnings per share $ 0.78 $ 0.49 $ 1.18 $ 1.13
Diluted earnings per share $ 0.78 $ 0.48 $ 1.18 $ 1.12
Basic weighted average shares outstanding 1,106.8 1,124.5 1,109.7 1,124.7
Diluted weighted average shares outstanding 1,109.2 1,130.7 1,111.9 1,131.0
Cash dividends declared per common share $ 0.205 $ 0.188 $ 0.563 $ 0.376
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP NET EARNINGS
TO CONSOLIDATED NON-GAAP NET EARNINGS
(Unaudited)
(in millions, except per share data)
Three months ended
October 30, October 24, Percentage
2009 2008 Change
Net earnings, as reported $ 868 $ 547 59 %
Certain litigation charges, net (44 ) (a) 176 (c)
IPR&D charges - 11 (d)
Impact of adoption of new authoritative convertible debt guidance on 26 (b) 24 (b)
interest expense, net
Non-GAAP net earnings $ 850 $ 758 12 %
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP DILUTED EPS
TO CONSOLIDATED NON-GAAP DILUTED EPS
(Unaudited)
Three months ended
October 30, October 24, Percentage
2009 2008 Change
Diluted EPS, as reported $ 0.78 $ 0.48 63 %
Certain litigation charges, net (0.04 ) (a) 0.16 (c)
IPR&D charges - 0.01 (d)
Impact of adoption of new authoritative convertible debt guidance on 0.02 (b) 0.02 (b)
interest expense, net
Non-GAAP diluted EPS $ 0.77 (1) $ 0.67 15 %
(1) The data in this schedule has been intentionally rounded
to the nearest $0.01 and therefore may not sum.
(a) The $44 million ($0.04 per share) after-tax ($70 million pre-tax)
certain litigation gain is related to the resolution of outstanding
patent litigation with W.L. Gore & Associates (Gore) related to selected
patents in Medtronic's Jervis and Wiktor patent families. The terms of
the agreement stipulate that neither party will sue each other in the
defined field of use, subject to certain conditions. Medtronic granted
Gore a worldwide, irrevocable, non-exclusive license in the defined
field of use. In addition and subject to certain conditions, Gore will
pay Medtronic a quarterly license payment through the fiscal quarter
ending October 2018. In addition to disclosing this certain litigation
gain that is determined in accordance with U.S. generally accepted
accounting principles (U.S. GAAP), Medtronic management believes that in
order to properly understand its short-term and long-term financial
trends, investors may find it useful to consider the impact of excluding
this $70 million pre-tax certain litigation gain. Management believes
that the resulting non-GAAP financial measure provides useful
information to investors regarding the underlying business trends and
performance of the Company's ongoing operations and is useful for period
over period comparisons of such operations. Medtronic management
eliminates this certain litigation gain when evaluating the operating
performance of the Company. Investors should consider this non-GAAP
measure in addition to, and not as a substitute for, financial
performance measures prepared in accordance with U.S. GAAP. In addition,
this non-GAAP financial measure may not be the same as similar measures
presented by other companies.
(b) The adoption of Financial Accounting Standards Board (FASB) new
authoritative guidance on accounting for convertible debt has resulted
in an after-tax impact to net earnings of $26 million ($0.02 per share)
and $24 million ($0.02 per share) for the three months ended October 30,
2009 and October 24, 2008, respectively. The pre-tax impact to interest
expense, net was $41 million and $38 million for the three months ended
October 30, 2009 and October 24, 2008, respectively. In addition to
disclosing the financial statement impact of the adoption of this new
authoritative guidance that is determined in accordance with U.S. GAAP,
Medtronic management believes that in order to properly understand its
short-term and long-term financial trends, investors may find it useful
to consider the impact of excluding the impact of the adoption of this
new guidance. Management believes that the resulting non-GAAP financial
measure provides useful information to investors regarding the
underlying business trends and performance of the Company's ongoing
operations and is useful for period over period comparisons of such
operations. Medtronic management eliminates the impact of the adoption
of this new guidance when evaluating the operating performance of the
Company. Investors should consider this non-GAAP measure in addition to,
and not as a substitute for, financial performance measures prepared in
accordance with U.S. GAAP. In addition, this non-GAAP financial measure
may not be the same as similar measures presented by other companies.
(c) The $176 million ($0.16 per share) after-tax certain litigation
charge is related to a $229 million ($152 million after-tax) charge
related to the final judgment in litigation with the Cordis Corporation
(a subsidiary of Johnson & Johnson) that originated in October 1997 and
a $37 million ($24 million after-tax) charge related to the settlement
of litigation with Fastenetix LLC that originated in May 2006. The
charge related to litigation with the Cordis Corporation was in addition
to a $243 million reserve recorded in the third quarter of fiscal year
2008. In addition to disclosing certain litigation charges that are
determined in accordance with U.S. GAAP, Medtronic management believes
that in order to properly understand its short-term and long-term
financial trends, investors may find it useful to consider the impact of
excluding these certain litigation charges. Management believes that the
resulting non-GAAP financial measure provides useful information to
investors regarding the underlying business trends and performance of
the Company's ongoing operations and is useful for period over period
comparisons of such operations. Medtronic management eliminates these
certain litigation charges when evaluating the operating performance of
the Company. Investors should consider this non-GAAP measure in addition
to, and not as a substitute for, financial performance measures prepared
in accordance with U.S. GAAP. In addition, this non-GAAP financial
measure may not be the same as similar measures presented by other
companies.
(d) The $11 million ($0.01 per share) after-tax IPR&D charge represents
the purchase of certain intellectual property for use in the Spine
business. These payments were expensed as IPR&D since technological
feasibility of the underlying product had not yet been reached and such
technology has no future alternative use. In addition to disclosing
IPR&D charges that are determined in accordance with U.S. GAAP,
Medtronic management believes that in order to properly understand its
short-term and long-term financial trends, investors may find it useful
to consider the impact of excluding these IPR&D charges. Management
believes that the resulting non-GAAP financial measure provides useful
information to investors regarding the underlying business trends and
performance of the Company's ongoing operations and is useful for period
over period comparisons of such operations. Medtronic management
eliminates these IPR&D charges when evaluating the operating performance
of the Company. Investors should consider this non-GAAP measure in
addition to, and not as a substitute for, financial performance measures
prepared in accordance with U.S. GAAP. In addition, this non-GAAP
financial measure may not be the same as similar measures presented by
other companies.
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP NET EARNINGS
TO CONSOLIDATED NON-GAAP NET EARNINGS
(Unaudited)
(in millions, except per share data)
Six months ended
October 30, October 24, Percentage
2009 2008 Change
Net earnings, as reported $ 1,314 $ 1,270 3 %
Restructuring charges 50 (a) 66 (d)
Certain litigation charges, net 316 (b) 176 (e)
IPR&D charges - 11 (f)
Impact of adoption of new authoritative convertible debt guidance on 54 (c) 48 (c)
interest expense, net
Non-GAAP net earnings $ 1,734 $ 1,571 10 %
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP DILUTED EPS
TO CONSOLIDATED NON-GAAP DILUTED EPS
(Unaudited)
Six months ended
October 30, October 24, Percentage
2009 2008 Change
Diluted EPS, as reported $ 1.18 $ 1.12 5 %
Restructuring charges 0.04 (a) 0.06 (d)
Certain litigation charges, net 0.28 (b) 0.16 (e)
IPR&D charges - 0.01 (f)
Impact of adoption of new authoritative convertible debt guidance on 0.05 (c) 0.04 (c)
interest expense, net
Impact of adoption of new authoritative share based payment guidance - 0.01 (g)
Non-GAAP diluted EPS $ 1.56 (1) $ 1.39 (1) 12 %
(1) The data in this schedule has been intentionally rounded
to the nearest $0.01 and therefore may not sum.
(a) The $50 million ($0.04 per share) after-tax ($69 million pre-tax)
restructuring charge is the net impact of a $52 million after-tax charge
related to restructuring initiatives that the Company began in the
fourth quarter of fiscal year 2009, offset by a $2 million after-tax net
reversal of excess reserves related to the global realignment initiative
that began in the fourth quarter of fiscal year 2008. The fiscal year
2009 initiatives are designed to streamline operations and further align
resources around the Company's higher growth opportunities. This
initiative impacts most businesses and certain corporate functions. In
the first quarter of fiscal year 2010, the Company recognized expense
associated with compensation and early retirement benefits provided to
employees which could not be accrued in the fourth quarter of fiscal
year 2009. In addition, the Company recorded $4 million of the after-tax
expense ($7 million pre-tax) within cost of products sold related to
inventory write-offs and production-related asset impairments associated
with these restructuring activities. The $2 million after-tax net
reversal is primarily a result of a $5 million after-tax reversal due to
favorable severance negotiations with certain employee populations
outside the U.S. as well as a higher than expected percentage of
employees identified for elimination finding positions elsewhere within
the Company partially offset by a $3 million after-tax charge the
Company recorded in the first quarter of fiscal year 2010 related to the
further write-down of a non-inventory related asset resulting from the
continued decline in the international real estate market. There were no
additional restructuring charges in the second quarter of fiscal year
2010. In addition to disclosing restructuring charges that are
determined in accordance with U.S. generally accepted accounting
principles (U.S. GAAP), Medtronic management believes that in order to
properly understand its short-term and long-term financial trends,
investors may find it useful to consider the impact of excluding these
restructuring charges. Management believes that the resulting non-GAAP
financial measure provides useful information to investors regarding the
underlying business trends and performance of the Company's ongoing
operations and is useful for period over period comparisons of such
operations. Medtronic management eliminates these restructuring charges
when evaluating the operating performance of the Company. Investors
should consider this non-GAAP measure in addition to, and not as a
substitute for, financial performance measures prepared in accordance
with U.S. GAAP. In addition, this non-GAAP financial measure may not be
the same as similar measures presented by other companies.
(b) The $316 million ($0.28 per share) after-tax ($374 million pre-tax)
certain litigation charges, net relate to settlements with Abbott
Laboratories (Abbott) and with W.L. Gore & Associates (Gore). The Abbott
settlement accounted for $360 million after-tax ($444 million pre-tax)
charges and the Gore settlement accounted for $44 million after-tax ($70
million pre-tax) gain of certain litigation charges, net. The Abbott
settlement related to the resolution of all outstanding intellectual
property litigation. The terms of the Abbott agreement stipulate that
neither party will sue each other in the field of coronary stent and
stent delivery systems for a period of at least 10 years, subject to
certain conditions. Both parties also agreed to a cross-license of the
disputed patents within the defined field. The $444 million pre-tax
settlement amount includes a $400 million payment to Abbott and a
$42 million success payment made to evYsio Medical Devices, LLC
(evYsio). In addition, a $2 million payment was made to evYsio in order
to expand the definition of the license field from evYsio. The Gore
settlement related to the resolution of outstanding patent litigation
related to selected patents in Medtronic's Jervis and Wiktor patent
families. The terms of the agreement stipulate that neither party will
sue each other in the defined field of use, subject to certain
conditions. In addition and subject to certain conditions, Medtronic
granted Gore a worldwide, irrevocable, non-exclusive license in the
defined field of use. Gore will also pay Medtronic a quarterly license
payment through the fiscal quarter ending October 2018. In addition to
disclosing certain litigation charges that are determined in accordance
with U.S. GAAP, Medtronic management believes that in order to properly
understand its short-term and long-term financial trends, investors may
find it useful to consider the impact of excluding these certain
litigation charges. Management believes that the resulting non-GAAP
financial measure provides useful information to investors regarding the
underlying business trends and performance of the Company's ongoing
operations and is useful for period over period comparisons of such
operations. Medtronic management eliminates these certain litigation
charges when evaluating the operating performance of the Company.
Investors should consider this non-GAAP measure in addition to, and not
as a substitute for, financial performance measures prepared in
accordance with U.S. GAAP. In addition, this non-GAAP financial measure
may not be the same as similar measures presented by other companies
(c) The adoption of new authoritative guidance for convertible debt
accounting has resulted in an after-tax impact to net earnings of $54
million ($0.05 per share) and $48 million ($0.04 per share) for the six
months ended October 30, 2009 and October 24, 2008, respectively. The
pre-tax impact to interest expense, net was $84 million and $76 million
for the six months ended October 30, 2009 and October 24, 2008,
respectively. In addition to disclosing the financial statement impact
of the adoption of this new guidance that is determined in accordance
with U.S. GAAP, Medtronic management believes that in order to properly
understand its short-term and long-term financial trends, investors may
find it useful to consider the impact of excluding the impact of the
adoption of this new guidance. Management believes that the resulting
non-GAAP financial measure provides useful information to investors
regarding the underlying business trends and performance of the
Company's ongoing operations and is useful for period over period
comparisons of such operations. Medtronic management eliminates the
impact of adoption of this new guidance when evaluating the operating
performance of the Company. Investors should consider this non-GAAP
measure in addition to, and not as a substitute for, financial
performance measures prepared in accordance with U.S. GAAP. In addition,
this non-GAAP financial measure may not be the same as similar measures
presented by other companies.
(d) The $66 million ($0.06 per share) after-tax restructuring charge is
related to a global realignment initiative that the Company began in the
fourth quarter of fiscal year 2008. This initiative focuses on shifting
resources to those areas where the Company has the greatest
opportunities for growth and streamlining operations to drive operating
leverage. The global realignment initiative impacts most businesses and
certain corporate functions. The majority of the expense recognized in
the first quarter of fiscal year 2009 is related to the execution of our
global realignment initiative outside the United States. This includes
the realignment of personnel throughout Europe and the Emerging Markets
and the closure of an existing facility in the Netherlands that will be
integrated into the U.S. operations. The remainder of the expense is
associated with compensation provided to employees identified in the
fourth quarter of fiscal year 2008 whose employment terminated with the
Company in the first quarter of fiscal year 2009. These incremental
costs were not accrued in the fourth quarter of fiscal year 2008 because
these benefits had not yet been communicated to the impacted employees.
As of October 30, 2009, the global realignment initiative was
substantially complete. In addition to disclosing restructuring charges
that are determined in accordance with U.S. GAAP, Medtronic management
believes that in order to properly understand its short-term and
long-term financial trends, investors may find it useful to consider the
impact of excluding these restructuring charges. Management believes
that the resulting non-GAAP financial measure provides useful
information to investors regarding the underlying business trends and
performance of the Company's ongoing operations and is useful for period
over period comparisons of such operations. Medtronic management
eliminates these restructuring charges when evaluating the operating
performance of the Company. Investors should consider this non-GAAP
measure in addition to, and not as a substitute for, financial
performance measures prepared in accordance with U.S. GAAP. In addition,
this non-GAAP financial measure may not be the same as similar measures
presented by other companies.
(e) The $176 million ($0.16 per share) after-tax certain litigation
charge is related to a $229 million ($152 million after-tax) charge
related to the final judgment in litigation with the Cordis Corporation
(a subsidiary of Johnson & Johnson) that originated in October 1997 and
a $37 million ($24 million after-tax) charge related to the settlement
of litigation with Fastenetix LLC that originated in May 2006. The
charge related to litigation with the Cordis Corporation was in addition
to a $243 million reserve recorded in the third quarter of fiscal year
2008. In addition to disclosing certain litigation charges that are
determined in accordance with U.S. GAAP, Medtronic management believes
that in order to properly understand its short-term and long-term
financial trends, investors may find it useful to consider the impact of
excluding these certain litigation charges. Management believes that the
resulting non-GAAP financial measure provides useful information to
investors regarding the underlying business trends and performance of
the Company's ongoing operations and is useful for period over period
comparisons of such operations. Medtronic management eliminates these
certain litigation charges when evaluating the operating performance of
the Company. Investors should consider this non-GAAP measure in addition
to, and not as a substitute for, financial performance measures prepared
in accordance with U.S. GAAP. In addition, this non-GAAP financial
measure may not be the same as similar measures presented by other
companies.
(f) The $11 million ($0.01 per share) after-tax IPR&D charge represents
the purchase of certain intellectual property for use in the Spine
business. These payments were expensed as IPR&D since technological
feasibility of the underlying product had not yet been reached and such
technology has no future alternative use. In addition to disclosing
IPR&D charges that are determined in accordance with U.S. GAAP,
Medtronic management believes that in order to properly understand its
short-term and long-term financial trends, investors may find it useful
to consider the impact of excluding these IPR&D charges. Management
believes that the resulting non-GAAP financial measure provides useful
information to investors regarding the underlying business trends and
performance of the Company's ongoing operations and is useful for period
over period comparisons of such operations. Medtronic management
eliminates these IPR&D charges when evaluating the operating performance
of the Company. Investors should consider this non-GAAP measure in
addition to, and not as a substitute for, financial performance measures
prepared in accordance with U.S. GAAP. In addition, this non-GAAP
financial measure may not be the same as similar measures presented by
other companies.
(g) The $0.01 per share adjustment is the result of adopting new FASB
issued authoritative guidance in the first quarter of fiscal year 2010
for determining whether instruments granted in share-based payment
transactions are participating securities. This new guidance provides
that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of
earnings per share (EPS) pursuant to the two-class method. The Company
is required to retrospectively adjust all prior-period EPS data. The
Company included 4.1 million and 4.2 million for the three and six
months October 24, 2008, respectively, which resulted in a $0.01 per
share increase to non-GAAP diluted EPS for six months ended October 24,
2008. In addition to disclosing the financial statement impact of the
adoption of this new guidance that is determined in accordance with U.S.
GAAP, Medtronic management believes that in order to properly understand
its short-term and long-term financial trends, investors may find it
useful to consider the impact of excluding the impact of the adoption of
this new guidance. Management believes that the resulting non-GAAP
financial measure provides useful information to investors regarding the
underlying business trends and performance of the Company's ongoing
operations and is useful for period over period comparisons of such
operations. Medtronic management eliminates the impact of adoption of
this new guidance when evaluating the operating performance of the
Company. Investors should consider this non-GAAP measure in addition to,
and not as a substitute for, financial performance measures prepared in
accordance with U.S. GAAP. In addition, this non-GAAP financial measure
may not be the same as similar measures presented by other companies.
MEDTRONIC, INC.
RECONCILIATION OF REVENUE GROWTH TO CONSTANT CURRENCY GROWTH
(Unaudited)
(in millions)
Three months ended
October 30, October 24, Reported Currency Impact Constant Currency
2009 2008 Growth on Growth (a) Growth (a)
Reported Revenue:
Pacing Systems $ 498 $ 506 (2 ) % - % (2 ) %
Defibrillation Systems 754 724 4 (2 ) 6
Other 26 12 117 (8 ) 125
Cardiac Rhythm Disease Management 1,278 1,242 3 - 3
Core Spinal 642 631 2 - 2
Biologics 220 198 11 (1 ) 12
Spinal 862 829 4 - 4
Coronary 369 315 17 (1 ) 18
Structural Heart 206 186 11 - 11
Endovascular 121 95 27 (1 ) 28
CardioVascular 696 596 17 (1 ) 18
Neuromodulation 384 343 12 - 12
Diabetes 300 272 10 (1 ) 11
Surgical Technologies 224 213 5 (1 ) 6
Physio-Control 94 75 25 1 24
Total $ 3,838 $ 3,570 8 % - % 8 %
(a) Medtronic believes that in order to properly understand Medtronic's
short-term and long-term financial trends, investors may wish to
consider the impact of foreign currency translation on revenue. In
addition, Medtronic management uses results of operations before
currency translation to evaluate the operational performance of the
Company and as a basis for strategic planning. Investors should consider
these non-GAAP measures in addition to, an not as a substitute for,
financial performance measures prepared in accordance with U.S. GAAP.
MEDTRONIC, INC.
RECONCILIATION OF OUS REVENUE GROWTH AT CONSTANT CURRENCY
(Unaudited)
(in millions)
Three months ended Percentage
October 30, 2009 October 24, 2008 Change
OUS Revenue, as reported $ 1,541 $ 1,374 12 %
Currency Impact 16 (a) -
OUS Revenue, comparable currency rates $ 1,557 $ 1,374 13 %
(a) Medtronic management believes that in order to properly understand
Medtronic's short-term and long-term financial trends, investors may
wish to consider the impact of foreign currency translation on revenue.
In addition, Medtronic management uses results of operations before
currency translation to evaluate the operational performance of the
Company and as a basis for strategic planning. Investors should consider
these non-GAAP measures in addition to, and not as a substitute for,
financial performance measures prepared in accordance with U.S. GAAP.
MEDTRONIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 30, April 24,
2009 2009
(in millions, except per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 826 $ 1,271
Short-term investments 716 405
Accounts receivable, less allowances of $68 and $61, respectively 3,232 3,123
Inventories 1,474 1,426
Deferred tax assets, net 565 605
Prepaid expenses and other current assets 499 622
Total current assets 7,312 7,452
Property, plant and equipment 5,151 4,887
Accumulated depreciation (2,781 ) (2,608 )
Property, plant and equipment, net 2,370 2,279
Goodwill 8,232 8,195
Other intangible assets, net 2,364 2,477
Long-term investments 3,751 2,769
Other assets 255 416
Total assets $ 24,284 $ 23,588
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings $ 1,128 $ 522
Accounts payable 396 382
Accrued compensation 770 901
Accrued income taxes 119 130
Other accrued expenses 865 1,212
Total current liabilities 3,278 3,147
Long-term debt 6,368 6,253
Long-term accrued compensation and retirement benefits 360 329
Long-term accrued income taxes 544 475
Long-term deferred tax liabilities, net 37 115
Other long-term liabilities 89 87
Total liabilities 10,676 10,406
Commitments and contingencies - -
Shareholders' equity:
Preferred stock-- par value $1.00 - -
Common stock-- par value $0.10 111 112
Retained earnings 13,750 13,272
Accumulated other comprehensive loss (253 ) (202 )
Total shareholders' equity 13,608 13,182
Total liabilities and shareholders' equity $ 24,284 $ 23,588
MEDTRONIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
October 30, October 24,
2009 2008
(in millions)
Operating Activities:
Net earnings $ 1,313 $ 1,270
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 372 352
Amortization of discount on senior convertible notes 84 76
IPR&D charges - 18
Provision for doubtful accounts 19 16
Deferred income taxes 143 43
Stock-based compensation 128 108
Excess tax benefit from exercise of stock-based awards - (26 )
Change in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable (89 ) 270
Inventories (15 ) (141 )
Accounts payable and accrued liabilities (73 ) 116
Other operating assets and liabilities 89 (276 )
Certain litigation charges, net 374 266
Certain litigation payments (939 ) (472 )
Net cash provided by operating activities 1,406 1,620
Investing Activities:
Acquisitions, net of cash acquired - (29 )
Purchase of intellectual property (40 ) (135 )
Additions to property, plant and equipment (279 ) (263 )
Purchases of marketable securities (2,916 ) (1,877 )
Sales and maturities of marketable securities 1,745 1,321
Other investing activities, net (88 ) (5 )
Net cash used in investing activities (1,578 ) (988 )
Financing Activities:
Change in short-term borrowings, net 618 (124 )
Payments on long-term debt (6 ) (300 )
Dividends to shareholders (455 ) (421 )
Issuance of common stock 103 367
Excess tax benefit from exercise of stock-based awards - 26
Repurchase of common stock (609 ) (639 )
Net cash used in financing activities (349 ) (1,091 )
Effect of exchange rate changes on cash and cash equivalents 76 (60 )
Net change in cash and cash equivalents (445 ) (519 )
Cash and cash equivalents at beginning of period 1,271 1,060
Cash and cash equivalents at end of period $ 826 $ 541
Supplemental Cash Flow Information
Income taxes paid $ 193 $ 249
Interest paid 181 113
Supplemental Noncash Investing and Financing Activities:
Reclassification of debentures from short-term to long-term debt $ - $ 15
SOURCE: Medtronic, Inc.
Medtronic, Inc.
Investor Relations:
Jeff Warren, 763-505-2696
or
Public Relations:
Chuck Grothaus, 763-505-2614
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