EX-99.1 2 c61482exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
(MEDTRONIC LOGO)
NEWS RELEASE
         
 
  Contacts:    
FINAL
        
 
  Jeff Warren
Investor Relations
763-505-2696 		  Brian Henry
Public Relations
763-505-2796
FOR IMMEDIATE RELEASE
MEDTRONIC REPORTS SECOND QUARTER EARNINGS
  •   International Revenue of $1.6 Billion Grew 6% on a Constant Currency Basis; 4% As Reported
 
  •   Emerging Market Revenue Grew 19% on Constant Currency Basis; 22% As Reported
 
  •   Non-GAAP Diluted EPS of $0.82 Grew 6%; GAAP Diluted EPS of $0.52 Declined 33%
MINNEAPOLIS — November 23, 2010 — Medtronic, Inc. (NYSE:MDT) today announced financial results for its second quarter of fiscal year 2011, which ended October 29, 2010.
The company reported worldwide second quarter revenue of $3.903 billion, compared to the $3.838 billion reported in the second quarter of fiscal year 2010, an increase of 2 percent as reported and on a constant currency basis.
As detailed in the attached table, second quarter net earnings and diluted earnings per share on a non-GAAP basis were $887 million and $0.82, an increase of 4 percent and 6 percent, respectively, over the same period in the prior year. As reported, second quarter net earnings were $566 million, or $0.52 per diluted share, a decrease of 35 percent and 33 percent, respectively, over the same period in the prior year.
International revenue of $1.608 billion increased 4 percent compared to the same period last year, or an increase of 6 percent after adjusting for a $29 million negative foreign

 

 

currency impact. International sales accounted for 41 percent of Medtronic’s worldwide revenue.
“Overall, we saw relative market stability from July through October in a challenging market environment with more consistent performance in our businesses, resulting in sequential share gains in ICDs, pacemakers, spine, and drug-eluting stents,” said Bill Hawkins, Medtronic chairman and chief executive officer. “While macroeconomic challenges remain, we continue to advance our pipeline, drive growth in emerging markets and with our emerging therapies, and remain focused on leveraging our size and scale to reduce our cost structure. This positions us well for solid, market-leading performance in the long run.”
Cardiac and Vascular Group
The Cardiac and Vascular Group at Medtronic is comprised of Cardiac Rhythm Disease Management (CRDM), CardioVascular, and Physio-Control. The group reported worldwide sales in the quarter of $2.095 billion, which represents an increase of 1 percent as reported or 2 percent after adjusting for foreign currency. Cardiac & Vascular Group International sales of $1.084 billion were up 4 percent as reported or 5 percent after adjusting for foreign currency. Group performance was driven by strong CardioVascular and Physio-Control sales offset by slower sales in CRDM.
CRDM revenue of $1.248 billion declined 2 percent as reported or 1 percent after adjusting for foreign currency. Revenue from implantable cardioverter defibrillators (ICDs) of $745 million was down 1 percent compared to the same period in the prior year, but up 3 percent sequentially compared to the first quarter of fiscal year 2011. Pacing revenue was $472 million in the quarter, a decline of 5 percent. CRDM sales were negatively affected by slower market growth, but partially offset by continued

 

 

growth of the AF Solutions business and the continued adoption of the Protecta™ ICD in Europe.
CardioVascular revenue of $738 million grew 6 percent as reported, or 7 percent after adjusting for foreign currency. Revenue growth was driven by strong international performance, particularly in Latin America, Greater China and Other Asia, leading to an increase in international sales of 10 percent as reported, or 12 percent after adjusting for foreign currency. The Coronary & Peripheral, Structural Heart, and Endovascular businesses grew worldwide revenue 3 percent, 17 percent, and 3 percent, respectively, after adjusting for foreign currency. Structural Heart revenue was driven by continued solid growth in transcatheter valves as well as revenue from the recent acquisition of ATS Medical, which closed in August.
Physio-Control revenue of $109 million increased 16 percent as reported, or 18 percent after adjusting for foreign currency. Solid U.S. growth of 31 percent was due in part to strong sales of the LIFEPAK™ 15 monitor/defibrillator and the resolution of a supplier constraint at the beginning of the quarter.
Restorative Therapies Group
The Restorative Therapies Group at Medtronic is comprised of Spinal, Neuromodulation, Diabetes, and Surgical Technologies. The group had worldwide sales in the quarter of $1.808 billion, which represents an increase of 2 percent as reported or 3 percent after adjusting for foreign currency. Restorative Therapies Group International sales of $524 million increased 6 percent as reported, or 8 percent after adjusting for foreign currency. Group revenue performance was led by strong growth in Diabetes and Surgical Technologies, offset by weaker sales in Spinal and Neuromodulation.

 

 

Spinal revenue of $850 million declined 1 percent both as reported and after adjusting for foreign currency, but was up 3 percent sequentially compared to the first quarter of fiscal year 2011. Sales in Core Spinal declined 1 percent. Biologics revenue decreased 2 percent. Slow but stable market growth, affected by continued utilization and pricing pressures, contributed to Spinal results.
Neuromodulation revenue of $388 million increased 1 percent as reported or 2 percent after adjusting for foreign currency. After adjusting for the fiscal year 2010 divestiture of the Bravo pH monitoring business, sales growth was 3 percent on a constant currency basis. Results were driven by new implant growth in pain stimulation therapies, Deep Brain Stimulation systems for movement disorders, and InterStim® Therapy for overactive bladder and urinary retention, and bowel control outside the United States.
Diabetes revenue of $326 million grew 9 percent as reported or 11 percent after adjusting for foreign currency. Growth in the quarter was driven by strong sales of continuous glucose monitoring products as well as solid performance in international markets, particularly in sales of insulin pumps.
Surgical Technologies revenue of $244 million grew 9 percent both as reported and on a constant currency basis. After adjusting for the fiscal year 2010 divestiture of the Ophthalmic business, sales growth was 11 percent on a constant currency basis. Sales performance in the U.S. was solid as capital spending in hospitals continued to improve, providing opportunities for technology upgrades driven by new product launches. International performance was strong in Japan, China and Latin America.

 

 

Revenue Outlook and Earnings per Share Guidance
The company today updated its revenue outlook and adjusted its diluted earnings per share guidance for fiscal year 2011.
For the second half of fiscal year 2011, based on estimated market growth of 2 to 3 percent, the company expects revenue growth in the range of 2 to 4 percent on a constant currency basis.
For fiscal year 2011, the company expects diluted earnings per share in the range of $3.38 to $3.44, which includes approximately $0.05 of dilution from the acquisition of Invatec and ATS Medical but does not take into account any impact from the pending acquisition of Ardian. Excluding the approximate $0.05 impact of acquisition dilution and the approximate $0.05 benefit of the extra week in fiscal year 2010, fiscal year 2011 diluted earnings per share growth is expected to be in the range of 8 percent to 10 percent.
Earnings per share guidance excludes 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 accounting rules governing convertible debt. The guidance provided only reflects information available to the company at this time.
“With the overwhelming financial and societal impact of chronic disease, it is a critical time for Medtronic’s leadership in the management of major health problems like diabetes, heart disease, neurological disorders and musculoskeletal disorders,” said Hawkins. “We have the size, scale and financial strength to significantly and fundamentally change the future direction of chronic disease globally.”

 

 

Webcast Information
Medtronic will host a webcast today, November 23, 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 Investors 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 & Presentations” section of the Investors portion of the Medtronic website.
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 related to expected product introductions and results of Medtronic’s future operations, 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 and general economic conditions and other risks and uncertainties described in Medtronic’s periodic reports on file with the Securities and Exchange Commission. 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,” and not on a constant currency basis; references to quarterly figures increasing or decreasing are in comparison to the second quarter of fiscal year 2010.
-end-

 

 

MEDTRONIC, INC.
WORLD WIDE REVENUE
(Unaudited)
                                                                                 
    FY10   FY10   FY10   FY10   FY10   FY11   FY11   FY11   FY11   FY11
($ millions)   QTR 1   QTR 2   QTR 3   QTR 4   Total   QTR 1   QTR 2   QTR 3   QTR 4   Total
         
 
                                                                                
REPORTED REVENUE :
                                                                                
 
                                                                                
CARDIAC RHYTHM DISEASE MANAGEMENT
   $ 1,337     $ 1,278     $ 1,243     $ 1,409     $ 5,268     $ 1,226     $ 1,248     $  —     $  —     $ 2,474  
Pacing Systems
     536       498       459       495       1,987       473       472       —       —       945  
Defibrillation Systems
     775       754       756       881       3,167       722       745       —       —       1,467  
Other
     26       26       28       33       114       31       31       —       —       62  
 
                                                                                
CARDIOVASCULAR
   $ 689     $ 696     $ 722     $ 757     $ 2,864     $ 717     $ 738     $  —     $  —     $ 1,455  
Coronary & Peripheral
     353       369       386       382       1,489       372       379       —       —       751  
Structural Heart
     218       206       216       239       880       224       237       —       —       461  
Endovascular
     118       121       120       136       495       121       122       —       —       243  
 
                                                                                
PHYSIO-CONTROL
   $ 97     $ 94     $ 100     $ 134     $ 425     $ 84     $ 109     $  —     $  —     $ 193  
         
 
                                                                                
CARDIAC & VASCULAR GROUP
   $ 2,123     $ 2,068     $ 2,065     $ 2,300     $ 8,557     $ 2,027     $ 2,095     $  —     $  —     $ 4,122  
         
 
                                                                                
SPINAL
   $ 915     $ 862     $ 842     $ 880     $ 3,500     $ 829     $ 850     $  —     $  —     $ 1,680  
Core Spinal
     696       642       630       664       2,632       622       634       —       —       1,257  
Biologics
     219       220       212       216       868       207       216       —       —       423  
 
                                                                                
NEUROMODULATION
   $ 373     $ 384     $ 394     $ 411     $ 1,560     $ 370     $ 388     $  —     $  —     $ 758  
 
                                                                                
DIABETES
   $ 295     $ 300     $ 311     $ 332     $ 1,237     $ 312     $ 326     $  —     $  —     $ 638  
 
                                                                                
SURGICAL TECHNOLOGIES
   $ 227     $ 224     $ 239     $ 273     $ 963     $ 235     $ 244     $  —     $  —     $ 479  
         
 
                                                                                
RESTORATIVE THERAPIES GROUP
   $ 1,810     $ 1,770     $ 1,786     $ 1,896     $ 7,260     $ 1,746     $ 1,808     $  —     $  —     $ 3,555  
         
 
                                                                                
TOTAL
   $ 3,933     $ 3,838     $ 3,851     $ 4,196     $ 15,817     $ 3,773     $ 3,903     $  —     $  —     $ 7,677  
         
 
                                                                                
ADJUSTMENTS :
                                                                                
 
                                                                                
CURRENCY IMPACT (1)
   $  —     $  —     $  —     $  —     $  —     $ (21 )   $ (29 )   $  —     $  —     $ (49 )
         
 
                                                                                
COMPARABLE OPERATIONS (1)
   $ 3,933     $ 3,838     $ 3,851     $ 4,196     $ 15,817     $ 3,794     $ 3,932     $ —     $ —     $ 7,726  
         
 
(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.
U.S. REVENUE
(Unaudited)
                                                                                 
    FY10   FY10   FY10   FY10   FY10   FY11   FY11   FY11   FY11   FY11
($ millions)   QTR 1   QTR 2   QTR 3   QTR 4   Total   QTR 1   QTR 2   QTR 3   QTR 4   Total
         
 
                                                                                
REPORTED REVENUE :
                                                                                
 
                                                                                
CARDIAC RHYTHM DISEASE MANAGEMENT
   $ 762     $ 721     $ 675     $ 787     $ 2,944     $ 691     $ 699     $  —     $  —     $ 1,390  
Pacing Systems
     247       221       193       212       872       214       210       —       —       424  
Defibrillation Systems
     508       492       475       567       2,043       467       481       —       —       948  
Other
     7       8       7       8       29       10       8       —       —       18  
 
                                                                                
CARDIOVASCULAR
   $ 260     $ 252     $ 239     $ 264     $ 1,015     $ 241     $ 248     $  —     $  —     $ 489  
Coronary & Peripheral
     103       106       100       111       419       98       103       —       —       201  
Structural Heart
     98       87       86       92       363       89       91       —       —       180  
Endovascular
     59       59       53       61       233       54       54       —       —       108  
 
                                                                                
PHYSIO-CONTROL
   $ 57     $ 49     $ 53     $ 71     $ 230     $ 53     $ 64     $  —     $  —     $ 117  
         
 
                                                                                
CARDIAC & VASCULAR GROUP
   $ 1,079     $ 1,022     $ 967     $ 1,122     $ 4,189     $ 985     $ 1,011     $  —     $  —     $ 1,996  
         
 
                                                                                
SPINAL
   $ 712     $ 662     $ 644     $ 662     $ 2,680     $ 631     $ 645     $  —     $  —     $ 1,275  
Core Spinal
     507       457       446       462       1,871       439       445       —       —       884  
Biologics
     205       205       198       200       809       192       200       —       —       391  
 
                                                                                
NEUROMODULATION
   $ 265     $ 272     $ 272     $ 276     $ 1,086     $ 261     $ 278     $  —     $  —     $ 538  
 
                                                                                
DIABETES
   $ 193     $ 201     $ 203     $ 213     $ 810     $ 203     $ 213     $  —     $  —     $ 417  
 
                                                                                
SURGICAL TECHNOLOGIES
   $ 142     $ 140     $ 150     $ 169     $ 601     $ 149     $ 148     $  —     $  —     $ 298  
         
 
                                                                                
RESTORATIVE THERAPIES GROUP
   $ 1,312     $ 1,275     $ 1,269     $ 1,320     $ 5,177     $ 1,244     $ 1,284     $  —     $  —     $ 2,528  
         
 
                                                                                
TOTAL
   $ 2,391     $ 2,297     $ 2,236     $ 2,442     $ 9,366     $ 2,229     $ 2,295     $  —     $  —     $ 4,524  
         
 
                                                                                
ADJUSTMENTS :
                                                                                
 
                                                                                
CURRENCY IMPACT
   $  —     $  —     $  —     $  —     $  —     $  —     $  —     $  —     $  —     $  —
         
 
                                                                                
COMPARABLE OPERATIONS
   $ 2,391     $ 2,297     $ 2,236     $ 2,442     $ 9,366     $ 2,229     $ 2,295     $ —     $ —     $ 4,524  
         
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.
INTERNATIONAL REVENUE
(Unaudited)
                                                                                 
    FY10   FY10   FY10   FY10   FY10   FY11   FY11   FY11   FY11   FY11
($ millions)   QTR 1   QTR 2   QTR 3   QTR 4   Total   QTR 1   QTR 2   QTR 3   QTR 4   Total
         
 
                                                                                
REPORTED REVENUE :
                                                                                
 
                                                                                
CARDIAC RHYTHM DISEASE MANAGEMENT
   $ 575     $ 557     $ 568     $ 622     $ 2,324     $ 535     $ 549     $  —     $  —     $ 1,084  
Pacing Systems
     289       277       266       283       1,115       259       262       —       —       521  
Defibrillation Systems
     267       262       281       314       1,124       255       264       —       —       519  
Other
     19       18       21       25       85       21       23       —       —       44  
 
                                                                                
CARDIOVASCULAR
   $ 429     $ 444     $ 483     $ 493     $ 1,849     $ 476     $ 490     $  —     $  —     $ 966  
Coronary & Peripheral
     250       263       286       271       1,070       274       276       —       —       550  
Structural Heart
     120       119       130       147       517       135       146       —       —       281  
Endovascular
     59       62       67       75       262       67       68       —       —       135  
 
                                                                                
PHYSIO-CONTROL
   $ 40     $ 45     $ 47     $ 63     $ 195     $ 31     $ 45     $  —     $  —     $ 76  
         
 
                                                                                
CARDIAC & VASCULAR GROUP
   $ 1,044     $ 1,046     $ 1,098     $ 1,178     $ 4,368     $ 1,042     $ 1,084     $  —     $  —     $ 2,126  
         
 
                                                                                
SPINAL
   $ 203     $ 200     $ 198     $ 218     $ 820     $ 198     $ 205     $  —     $  —     $ 405  
Core Spinal
     189       185       184       202       761       183       189       —       —       373  
Biologics
     14       15       14       16       59       15       16       —       —       32  
 
                                                                                
NEUROMODULATION
   $ 108     $ 112     $ 122     $ 135     $ 474     $ 109     $ 110     $  —     $  —     $ 220  
 
                                                                                
DIABETES
   $ 102     $ 99     $ 108     $ 119     $ 427     $ 109     $ 113     $  —     $  —     $ 221  
 
                                                                                
SURGICAL TECHNOLOGIES
   $ 85     $ 84     $ 89     $ 104     $ 362     $ 86     $ 96     $  —     $  —     $ 181  
         
 
                                                                                
RESTORATIVE THERAPIES GROUP
   $ 498     $ 495     $ 517     $ 576     $ 2,083     $ 502     $ 524     $  —     $  —     $ 1,027  
         
 
                                                                                
TOTAL
   $ 1,542     $ 1,541     $ 1,615     $ 1,754     $ 6,451     $ 1,544     $ 1,608     $  —     $  —     $ 3,153  
         
 
                                                                                
ADJUSTMENTS :
                                                                                
 
                                                                                
CURRENCY IMPACT (1)
   $  —     $  —     $  —     $  —     $  —     $ (21 )   $ (29 )   $ —     $ —     $ (49 )
         
 
                                                                                
COMPARABLE OPERATIONS (1)
   $ 1,542     $ 1,541     $ 1,615     $ 1,754     $ 6,451     $ 1,565     $ 1,637     $ —     $ —     $ 3,202  
         
 
(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 29,     October 30,     October 29,     October 30,  
    2010     2009     2010     2009  
    (in millions, except per share data)
Net sales
   $ 3,903     $ 3,838     $ 7,677     $ 7,771  
 
                                
Costs and expenses:
                                
Cost of products sold
     961       922       1,855       1,888  
Research and development expense
     373       369       743       739  
Selling, general, and administrative expense
     1,371       1,323       2,705       2,691  
Restructuring charges
     —       —       —       62  
Certain litigation charges, net
     279       (70 )     279       374  
Purchased in-process research and development (IPR&D) and certain acquisition-related costs
     24       —       39       —  
Other expense, net
     76       130       123       224  
Interest expense, net
     67       54       141       121  
 
                        
Total costs and expenses
     3,151       2,728       5,885       6,099  
 
                        
 
                                
Earnings before income taxes
     752       1,110       1,792       1,672  
 
                                
Provision for income taxes
     186       242       396       358  
 
                        
 
                                
Net earnings
   $ 566     $ 868     $ 1,396     $ 1,314  
 
                        
 
                                
Basic earnings per share
   $ 0.52     $ 0.78     $ 1.29     $ 1.18  
 
                        
Diluted earnings per share
   $ 0.52     $ 0.78     $ 1.28     $ 1.18  
 
                        
 
                                
Basic weighted average shares outstanding
     1,080.1       1,106.8       1,083.1       1,109.7  
Diluted weighted average shares outstanding
     1,083.7       1,109.2       1,086.7       1,111.9  
 
                                
Cash dividends declared per common share
   $ 0.225     $ 0.205     $ 0.450     $ 0.410  

 

 

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 29,     October 30,     Percentage  
    2010     2009     Change  
 
                        
Net earnings, as reported
   $ 566     $ 868       -35 %
Certain litigation charges, net
     278 (a)     (44 )(d)        
IPR&D and certain acquisition-related costs
     16 (b)     —          
Impact of authoritative convertible debt guidance on interest expense, net
     27 (c)     26 (c)        
 
                    
Non-GAAP net earnings
   $ 887     $ 850       4 %
 
                    
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP DILUTED EPS
TO CONSOLIDATED NON-GAAP DILUTED EPS
(Unaudited)
                         
    Three months ended        
    October 29,     October 30,     Percentage  
    2010     2009     Change  
 
                        
Diluted EPS, as reported
   $ 0.52     $ 0.78       -33 %
Certain litigation charges, net
     0.26 (a)     (0.04 )(d)        
IPR&D and certain acquisition-related costs
     0.01 (b)     —          
Impact of authoritative convertible debt guidance on interest expense, net
     0.02 (c)     0.02 (c)        
 
                    
Non-GAAP diluted EPS
   $ 0.82 (1)   $ 0.77 (1)     6 %
 
                    
 
(1)   The data in this schedule has been intentionally rounded to the nearest $0.01 and therefore may not sum.
 
(a)   The $278 million ($0.26 per share) after-tax ($279 million pre-tax) certain litigation charges, net relate primarily to a settlement involving the Sprint Fidelis family of defibrillation leads and an accounting charge for Other Matters litigation. The Sprint Fidelis settlement relates to the resolution of certain outstanding product litigation related to the Sprint Fidelis family of defibrillation leads that were subject to a field action announced October 15, 2007. The terms of the agreement stipulate Medtronic will, if it elects not to cancel the agreement, pay plaintiffs to settle substantially all pending U.S. lawsuits and claims, subject to certain conditions. In addition to disclosing certain litigation charges, net 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 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.
 
(b)   The $16 million ($0.01 per share) after-tax ($24 million pre-tax) IPR&D and certain acquisition-related costs include acquisition-related legal fees and severance costs, change in control costs, and contract termination costs related to the acquisition of ATS Medical, Inc. that were expensed in the period. In addition to disclosing IPR&D and certain acquisition-related costs 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 acquisition-related costs. 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 acquisition-related costs 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 or similar to measures presented by other companies.

 

 

(c)   The Financial Accounting Standards Board (FASB) authoritative guidance on accounting for convertible debt has resulted in an after-tax impact to net earnings of $27 million ($0.02 per share) and $26 million ($0.02 per share) for the three months ended October 29, 2010 and October 30, 2009, respectively. The pre-tax impact to interest expense, net was $43 million and $41 million for the three months ended October 29, 2010 and October 30, 2009, respectively. In addition to disclosing the financial statement impact of this 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 this authoritative 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 this authoritative 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 $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. 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.

 

 

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 29,     October 30,     Percentage  
    2010     2009     Change  
 
                        
Net earnings, as reported
   $ 1,396     $ 1,314       6 %
Restructuring charges
     —       50 (d)        
Certain litigation charges, net
     278 (a)     316 (e)        
IPR&D and certain acquisition-related costs
     27 (b)     —          
Impact of authoritative convertible debt guidance on interest expense, net
     54 (c)     54 (c)        
 
                    
Non-GAAP net earnings
   $ 1,755     $ 1,734       1 %
 
                    
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP DILUTED EPS
TO CONSOLIDATED NON-GAAP DILUTED EPS
(Unaudited)
                         
    Six months ended        
    October 29,     October 30,     Percentage  
    2010     2009     Change  
 
                        
Diluted EPS, as reported
   $ 1.28     $ 1.18       8 %
Restructuring charges
     —       0.04 (d)        
Certain litigation charges, net
     0.26 (a)     0.28 (e)        
IPR&D and certain acquisition-related costs
     0.02 (b)     —          
Impact of authoritative convertible debt guidance on interest expense, net
     0.05 (c)     0.05 (c)        
 
                    
Non-GAAP diluted EPS
   $ 1.61     $ 1.56 (1)     3 %
 
                    
Note: The data in this schedule has been intentionally rounded and therefore the first quarter and second quarter data may not sum to the fiscal year to date totals.
 
(1)   The data in this schedule has been intentionally rounded to the nearest $0.01 and therefore may not sum.
 
(a)   The $278 million ($0.26 per share) after-tax ($279 million pre-tax) certain litigation charges, net relate primarily to a settlement involving the Sprint Fidelis family of defibrillation leads and an accounting charge for Other Matters litigation. The Sprint Fidelis settlement relates to the resolution of certain outstanding product litigation related to the Sprint Fidelis family of defibrillation leads that were subject to a field action announced October 15, 2007. The terms of the agreement stipulate Medtronic will, if it elects not to cancel the agreement, pay plaintiffs to settle substantially all pending U.S. lawsuits and claims, subject to certain conditions. In addition to disclosing certain litigation charges, net 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 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.
 
(b)   The $27 million ($0.02 per share) after-tax ($39 million pre-tax) IPR&D and certain acquisition-related costs represent an $11 million after-tax ($15 million pre-tax) IPR&D charge related to the NeuroPace, Inc. cross-licensing agreement and $16 million after-tax ($24 million pre-tax) of certain acquisition-related costs. The IPR&D charge related to a milestone payment under existing terms of a royalty bearing, non-exclusive patent cross-licensing agreement with NeuroPace, Inc. that the Company entered into in the first quarter of fiscal year 2006. This payment was charged to IPR&D as technological feasibility has not yet been reached and such technology has no future alternative use. The certain acquisition-related costs include acquisition-related legal fees and severance costs, change in control costs, and contract termination costs

 

 

    related to the acquisition of ATS Medical. Inc. that were expensed in the period. In addition to disclosing IPR&D and certain acquisition-related costs 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 and certain acquisition-related costs. 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 and certain acquisition-related costs 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 or similar to measures presented by other companies.
 
(c)   The Financial Accounting Standards Board (FASB) authoritative guidance for convertible debt accounting has resulted in an after-tax impact to net earnings of $54 million ($0.05 per share) for both the six months ended October 29, 2010 and October 30, 2009. The pre-tax impact to interest expense, net was $86 million and $84 million for the six months ended October 29, 2010 and October 30, 2009, respectively. In addition to disclosing the financial statement impact of this 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 this authoritative 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 this authoritative 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 $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 were 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. 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 $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, net 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.

 

 

MEDTRONIC, INC.
RECONCILIATION OF WORLDWIDE REVENUE GROWTH TO CONSTANT CURRENCY GROWTH
(Unaudited)
(in millions)
                                                 
    Three months ended             Currency Impact     Constant  
    October 29,     October 30,     Reported     on Growth (a)     Currency  
    2010     2009     Growth     Dollar     Percentage     Growth (a)  
Reported Revenue:
                                                
Pacing Systems
   $ 472     $ 498       (5 )%   $ (7 )     (1 )%     (4 )%
Defibrillation Systems
     745       754       (1 )     (4 )     —       (1 )
Other
     31       26       19       —       —       19  
 
                                          
Cardiac Rhythm Disease Management
     1,248       1,278       (2 )     (11 )     (1 )     (1 )
 
                                                
Coronary & Peripheral
     379       369       3       —       —       3  
Structural Heart
     237       206       15       (3 )     (2 )     17  
Endovascular
     122       121       1       (3 )     (2 )     3  
 
                                          
CardioVascular
     738       696       6       (6 )     (1 )     7  
 
                                                
Physio-Control
     109       94       16       (2 )     (2 )     18  
 
                                          
Cardiac & Vascular Group
     2,095       2,068       1       (19 )     (1 )     2  
 
                                          
 
                                                
Core Spinal
     634       642       (1 )     (1 )     —       (1 )
Biologics
     216       220       (2 )     1       —       (2 )
 
                                          
Spinal
     850       862       (1 )     —       —       (1 )
 
                                                
Neuromodulation
     388       384       1       (4 )     (1 )     2  
Diabetes
     326       300       9       (6 )     (2 )     11  
Surgical Technologies
     244       224       9       —       —       9  
 
                                          
Restorative Therapies Group
     1,808       1,770       2       (10 )     (1 )     3  
 
                                          
 
                                                
Total
   $ 3,903     $ 3,838       2 %   $ (29 )     — %     2 %
 
                                          
 
(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.
RECONCILIATION OF INTERNATIONAL REVENUE GROWTH TO CONSTANT CURRENCY GROWTH
(Unaudited)
(in millions)
                                                 
    Three months ended             Currency Impact     Constant  
    October 29,     October 30,     Reported     on Growth (a)     Currency  
    2010     2009     Growth     Dollar     Percentage     Growth (a)  
 
                                                
Reported Revenue:
                                                
Pacing Systems
   $ 262     $ 277       (5 )%   $ (7 )     (2 )%     (3 )%
Defibrillation Systems
     264       262       1       (4 )     (1 )     2  
Other
     23       18       28       —       —       28  
 
                                          
Cardiac Rhythm Disease Management
     549       557       (1 )     (11 )     (2 )     1  
 
                                                
Coronary & Peripheral
     276       263       5       —       —       5  
Structural Heart
     146       119       23       (3 )     (2 )     25  
Endovascular
     68       62       10       (3 )     (5 )     15  
 
                                          
CardioVascular
     490       444       10       (6 )     (2 )     12  
 
                                                
Physio-Control
     45       45       —       (2 )     (4 )     4  
 
                                          
Cardiac & Vascular Group
     1,084       1,046       4       (19 )     (1 )     5  
 
                                          
 
                                                
Core Spinal
     189       185       2       (1 )     (1 )     3  
Biologics
     16       15       7       1       7       —  
 
                                          
Spinal
     205       200       3       —       —       3  
 
                                                
Neuromodulation
     110       112       (2 )     (4 )     (5 )     3  
Diabetes
     113       99       14       (6 )     (6 )     20  
Surgical Technologies
     96       84       14       —       —       14  
 
                                          
Restorative Therapies Group
     524       495       6       (10 )     (2 )     8  
 
                                          
 
                                                
Total
   $ 1,608     $ 1,541       4 %   $ (29 )     (2 )%     6 %
 
                                          
 
(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.
RECONCILIATION OF NEUROMODULATION REVENUE GROWTH TO CONSTANT CURRENCY
REVENUE GROWTH ADJUSTED FOR THE DIVESTITURE OF THE BRAVO pH MONITORING BUSINESS
(Unaudited)
                         
    Three months ended     Three months ended     Percentage  
    October 29, 2010     October 30, 2009     Change  
 
                        
Neuromodulation revenue, as reported
   $ 388     $ 384       1 %
Foreign currency impact
     4       —          
Bravo pH monitoring business revenue
     —       (3 )        
 
                    
Neuromodulation revenue, adjusted
   $ 392     $ 381 (a)     3 %
 
                    
 
(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 and the divestiture of the Bravo pH monitoring business on revenue. In addition, Medtronic management uses Neuromodulation revenue adjusted for foreign currency translation and the divestiture of Bravo pH monitoring to evaluate 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.
RECONCILIATION OF SURGICAL TECHNOLOGIES REVENUE GROWTH TO CONSTANT CURRENCY
REVENUE GROWTH ADJUSTED FOR THE DIVESTITURE OF THE OPHTHALMIC BUSINESS
(Unaudited)
                         
    Three months ended     Three months ended     Percentage  
    October 29, 2010     October 30, 2009     Change  
 
                        
Surgical Technologies revenue, as reported
   $ 244     $ 224       9 %
Foreign currency impact
     —       —          
Ophthalmic business revenue
     —       (5 )        
 
                    
Surgical Technologies revenue, adjusted
   $ 244     $ 219 (a)     11 %
 
                    
 
(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 and the divestiture of the Ophthalmic business on revenue. In addition, Medtronic management uses Surgical Technologies revenue adjusted for foreign currency translation and the divestiture of the Ophthalmic business to evaluate 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 29,     April 30,  
    2010     2010  
    (in millions, except per share data)  
ASSETS
                
 
                
Current assets:
                
Cash and cash equivalents
   $ 1,256     $ 1,400  
Short-term investments
     2,288       2,375  
Accounts receivable, less allowances of $73 and $67, respectively
     3,453       3,335  
Inventories
     1,635       1,481  
Deferred tax assets, net
     681       544  
Prepaid expenses and other current assets
     581       704  
 
            
 
                
Total current assets
     9,894       9,839  
 
Property, plant, and equipment
     5,586       5,358  
Accumulated depreciation
     (3,128 )     (2,937 )
 
            
Property, plant, and equipment, net
     2,458       2,421  
 
                
Goodwill
     8,624       8,391  
Other intangible assets, net
     2,573       2,559  
Long-term investments
     5,448       4,632  
Other assets
     314       248  
 
            
 
                
Total assets
   $ 29,311     $ 28,090  
 
            
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
 
                
Current liabilities:
                
Short-term borrowings
   $ 3,417     $ 2,575  
Accounts payable
     438       420  
Accrued compensation
     707       1,001  
Accrued income taxes
     163       235  
Other accrued expenses
     1,170       890  
 
            
 
                
Total current liabilities
     5,895       5,121  
 
                
Long-term debt
     7,148       6,944  
Long-term accrued compensation and retirement benefits
     507       516  
Long-term accrued income taxes
     634       595  
Long-term deferred tax liabilities, net
     6       89  
Other long-term liabilities
     296       196  
 
            
 
                
Total liabilities
     14,486       13,461  
 
                
Commitments and contingencies
                
 
                
Shareholders’ equity:
                
Preferred stock— par value $1.00
     —       —  
Common stock— par value $0.10
     108       110  
Retained earnings
     15,114       14,826  
Accumulated other comprehensive loss
     (397 )     (307 )
 
            
 
                
Total shareholders’ equity
     14,825       14,629  
 
            
 
                
Total liabilities and shareholders’ equity
   $ 29,311     $ 28,090  
 
            

 

 

MEDTRONIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six months ended  
    October 29,     October 30,  
    2010     2009  
    (in millions)  
Operating Activities:
                
Net earnings
   $ 1,396     $ 1,314  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Depreciation and amortization
     402       372  
Amortization of discount on senior convertible notes
     86       84  
IPR&D charges
     15       —  
Provision for doubtful accounts
     18       19  
Deferred income taxes
     (77 )     143  
Stock-based compensation
     104       128  
Change in operating assets and liabilities, net of effect of acquisitions:
                
Accounts receivable, net
     (72 )     (89 )
Inventories
     (108 )     (15 )
Accounts payable and accrued liabilities
     (429 )     (74 )
Other operating assets and liabilities
     94       89  
Certain litigation charges, net
     279       374  
Certain litigation payments
     (5 )     (939 )
 
            
 
                
Net cash provided by operating activities
     1,703       1,406  
 
                
Investing Activities:
                
Acquisitions, net of cash acquired
     (452 )     —  
Purchase of intellectual property
     (17 )     (40 )
Additions to property, plant, and equipment
     (258 )     (279 )
Purchases of marketable securities
     (3,425 )     (2,916 )
Sales and maturities of marketable securities
     2,793       1,745  
Other investing activities, net
     (80 )     (88 )
 
            
 
                
Net cash used in investing activities
     (1,439 )     (1,578 )
 
                
Financing Activities:
                
Change in short-term borrowings, net
     1,181       618  
Payments on long-term debt
     (402 )     (6 )
Dividends to shareholders
     (488 )     (455 )
Issuance of common stock
     42       103  
Repurchase of common stock
     (760 )     (609 )
 
                
Net cash used in financing activities
     (427 )     (349 )
 
                
Effect of exchange rate changes on cash and cash equivalents
     19       76  
 
                
Net change in cash and cash equivalents
     (144 )     (445 )
 
                
Cash and cash equivalents at beginning of period
     1,400       1,271  
 
                
Cash and cash equivalents at end of period
   $ 1,256     $ 826  
 
            
 
                
Supplemental Cash Flow Information
                
Income taxes paid
   $ 552     $ 193  
Interest paid
     219       181