EX-99.1 2 c59931exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
(MEDTRONIC LOGO)   NEWS RELEASE
         
 
  Contacts:    
 
        
 
  Jeff Warren   Brian Henry
 
  Investor Relations   Public Relations
 
  763-505-2696   763-505-2796
FOR IMMEDIATE RELEASE
MEDTRONIC REPORTS FIRST QUARTER EARNINGS
Updates Fiscal 2011 Revenue Outlook and EPS Guidance
MINNEAPOLIS – August 24, 2010 – Medtronic, Inc. (NYSE:MDT) today announced financial results for its first quarter of fiscal year 2011, which ended July 30, 2010.
The company reported worldwide first quarter revenue of $3.773 billion, compared to the $3.933 billion reported in the first quarter of fiscal year 2010, a decrease of 4 percent as reported or an increase of 2 percent after adjusting for a $21 million unfavorable foreign currency impact and approximately $200 million of revenue benefit for the extra week in the first quarter of fiscal year 2010. The first quarter of fiscal year 2011 contained 13 weeks, one less week than the first quarter of fiscal year 2010.
As reported, first quarter net earnings were $830 million, or $0.76 per diluted share, an increase of 87 percent and 90 percent, respectively, over the same period in the prior year. As detailed in the attached table, first quarter net earnings and diluted earnings per share on a non-GAAP basis were $868 million and $0.80, a decrease of 2 percent and an increase of 1 percent, respectively, over the same period in the prior year. Further adjusting for the extra week in fiscal year 2010, results in a net earnings and diluted earnings per share increase of 5 percent and 8 percent, respectively, over the same period in the prior year.

 

 

Revenue outside the United States of $1.544 billion was flat compared to the same period last year, or an increase of 6 percent after adjusting for a $21 million negative foreign currency impact and the extra week in fiscal year 2010. International sales accounted for 41 percent of Medtronic’s worldwide revenue.
“A softer global healthcare market impacted by decreased utilization and increased pricing pressure made for a difficult first quarter,” said Bill Hawkins, Medtronic chairman and chief executive officer. “Solid performance from the CardioVascular, Diabetes and Surgical Technologies businesses was offset by softness in other businesses. Despite a difficult quarter, the fundamentals of our business remain strong and we are confident that our diversified portfolio positions us well to deliver 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 had worldwide sales in the quarter of $2.027 billion, which represents a decrease of 5 percent as reported or an increase of 1 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Cardiac & Vascular Group International sales of $1.042 billion were flat as reported compared to the prior year or an increase of 6 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Group revenue performance was driven by strong CardioVascular sales offset by weaker sales in CRDM and Physio-Control.
CRDM revenue of $1.226 billion declined 8 percent as reported or 3 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Revenue from implantable cardioverter defibrillators (ICD) was $722 million, while pacing revenue

 

 

was $473 million in the quarter. Lower CRDM sales due to slower market growth and increased pricing pressure were partially offset by continued growth of the AF Solutions business and the launch of the Protecta ICD in Europe.
CardioVascular revenue of $717 million grew 4 percent as reported or 10 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Revenue growth was driven by strong international growth of 11 percent as reported, or 18 percent after adjusting for foreign currency and the extra week in fiscal year 2010. The Coronary & Peripheral, Structural Heart, and Endovascular businesses grew worldwide revenue 11 percent, 10 percent, and 10 percent, respectively, after adjusting for foreign currency and the extra week in fiscal year 2010. Strong revenue performance was driven by the Invatec acquisition and transcatheter valves led by the CoreValve device.
Physio-Control revenue of $84 million declined 13 percent as reported or 7 percent after adjusting for foreign currency and the extra week in fiscal year 2010. The revenue decline was due largely to a supplier constraint that has been rectified subsequent to quarter end and a slowdown in spending by certain international governments.
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 $1.746 billion, which represents a decrease of 4 percent as reported or an increase of 2 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Restorative Therapies Group International sales of $502 million increased 1 percent as reported or 7 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Group revenue performance was led by strong growth in Diabetes and Surgical Technologies offset by weaker sales in Spinal.

 

 

Spinal revenue of $829 million declined 9 percent as reported or 5 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Sales of Core Spinal products and Biologics decreased 6 percent and 1 percent, respectively, after adjusting for foreign currency and the extra week in fiscal year 2010. Slowing market growth, driven by weaker procedure growth and increased pricing pressures, contributed to the decrease in revenue.
Neuromodulation revenue of $370 million declined 1 percent as reported or increased 5 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Growth continues to be driven by strong sales of Activa PC and RC 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 $312 million grew 6 percent as reported or 12 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Growth in the quarter was driven by strong sales of continuous glucose monitoring (CGM) products. Medtronic remains the only company with a sensor-augmented insulin pump, and the potential benefits of the technology were underscored by the successful results of the STAR 3 study presented at the American Diabetes Association annual conference in June.
Surgical Technologies revenue of $235 million grew 4 percent as reported or 9 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Capital spending in hospitals increased in the quarter, which provided opportunities for technology upgrades driven by new product launches.
Guidance

 

 

The company today updated revenue outlook and diluted earnings per share guidance for fiscal year 2011.
For fiscal year 2011, based on estimated market growth of 3 to 4 percent, the company expects revenue growth in the range of 2 to 5 percent on a constant currency basis. The company expects diluted earnings per share in the range of $3.40 to $3.48, which includes approximately $0.05 of dilution from the acquisition of Invatec and ATS Medical. 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 9 percent to 11 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.
“In these uncertain times, the strength of our diversified portfolio, both in terms of business and geography, is more important than ever,” said Hawkins. “Although we have experienced a slowdown in the markets of our largest businesses, the investments we are making in emerging markets and emerging therapies will allow us to achieve market-leading performance over the long-term. We remain confident in our robust product pipeline and look forward to a number of important product launches in the coming months. Our financial strength gives us the flexibility to drive our strategy and meet our financial commitments. The strategic and operational steps we have taken over the past few years have prepared us to succeed in a challenging environment.”
Webcast Information
Medtronic will host a webcast today, August 24, at 8 a.m. EDT (7 a.m. CDT), 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 first quarter of fiscal year 2010.
-end-

 

 

MEDTRONIC, INC.
WORLD WIDE REVENUE
(Unaudited)
                                                                                 
($ millions)   FY10 QTR1     FY10 QTR 2     FY10 QTR 3     FY10 QTR 4     FY10 Total     FY11 QTR 1     FY11 QTR 2     FY11 QTR 3     FY11 QTR 4     FY11 Total  
REPORTED REVENUE:
                                                                                
 
                                                                                
CARDIAC RHYTHM DISEASE MANAGEMENT
   $ 1,337     $ 1,278     $ 1,243     $ 1,409     $ 5,268     $ 1,226     $ —     $ —     $ —     $ 1,226  
Pacing Systems
     536       498       459       495       1,987       473       —       —       —       473  
Defibrillation Systems
     775       754       756       881       3,167       722       —     $ —       —       722  
Other
     26       26       28       33       114       31       —       —       —       31  
 
                                                                                
CARDIOVASCULAR
   $ 689     $ 696     $ 722     $ 757     $ 2,864     $ 717     $ —     $ —     $ —     $ 717  
Coronary & Peripheral
     353       369       386       382       1,489       372       —       —       —       372  
Structural Heart
     218       206       216       239       880       224       —       —       —       224  
Endovascular
     118       121       120       136       495       121       —       —       —       121  
 
                                                                                
PHYSIO-CONTROL
   $ 97     $ 94     $ 100     $ 134     $ 425     $ 84     $ —     $ —     $ —     $ 84  
     
 
                                                                                
CARDIAC & VASCULAR GROUP
   $ 2,123     $ 2,068     $ 2,065     $ 2,300     $ 8,557     $ 2,027     $ —     $ —     $ —     $ 2,027  
     
 
                                                                                
SPINAL
   $ 915     $ 862     $ 842     $ 880     $ 3,500     $ 829     $ —     $ —     $ —     $ 829  
Core Spinal
     696       642       630       664       2,632       622       —       —       —       622  
Biologics
     219       220       212       216       868       207       —       —       —       207  
 
                                                                                
NEUROMODULATION
   $ 373     $ 384     $ 394     $ 411     $ 1,560     $ 370     $ —     $ —     $ —     $ 370  
 
                                                                                
DIABETES
   $ 295     $ 300     $ 311     $ 332     $ 1,237     $ 312     $ —     $ —     $ —     $ 312  
 
                                                                                
SURGICAL TECHNOLOGIES
   $ 227     $ 224     $ 239     $ 273     $ 963     $ 235     $ —     $ —     $ —     $ 235  
     
RESTORATIVE THERAPIES GROUP
   $ 1,810     $ 1,770     $ 1,786     $ 1,896     $ 7,260     $ 1,746     $ —     $ —     $ —     $ 1,746  
     
TOTAL
   $ 3,933     $ 3,838     $ 3,851     $ 4,196     $ 15,817     $ 3,773     $ —     $ —     $ —     $ 3,773  
     
ADJUSTMENTS:
                                                                                
 
                                                                                
CURRENCY IMPACT (1)
   $ —     $ —     $ —     $ —     $ —     $ (21 )   $ —     $ —     $ —     $ (21 )
     
COMPARABLE OPERATIONS (1)
   $ 3,933     $ 3,838     $ 3,851     $ 4,196     $ 15,817     $ 3,794     $ —     $ —     $ —     $ 3,794  
     
 
(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.
US REVENUE
(Unaudited)
                                                                                 
($ millions)   FY10 QTR 1     FY10 QTR 2     FY10 QTR 3     FY10 QTR 4     FY10 Total     FY11 QTR 1     FY11 QTR 2     FY11 QTR 3     FY11 QTR 4     FY11 Total  
REPORTED REVENUE:
                                                                                
 
                                                                                
CARDIAC RHYTHM DISEASE MANAGEMENT
   $ 762     $ 721     $ 675     $ 787     $ 2,944     $ 691     $ —     $ —     $ —     $ 691  
Pacing Systems
     247       221       193       212       872       214       —       —       —       214  
Defibrillation Systems
     508       492       475       567       2,043       467       —       —       —       467  
Other
     7       8       7       8       29       10       —       —       —       10  
 
                                                                                
CARDIOVASCULAR
   $ 260     $ 252     $ 239     $ 264     $ 1,015     $ 241     $ —     $ —     $ —     $ 241  
Coronary & Peripheral
     103       106       100       111       419       98       —       —       —       98  
Structural Heart
     98       87       86       92       363       89       —       —       —       89  
Endovascular
     59       59       53       61       233       54       —       —       —       54  
 
                                                                                
PHYSIO-CONTROL
   $ 57     $ 49     $ 53     $ 71     $ 230     $ 53     $ —     $ —     $ —     $ 53  
     
 
                                                                                
CARDIAC & VASCULAR GROUP
   $ 1,079     $ 1,022     $ 967     $ 1,122     $ 4,189     $ 985     $ —     $ —     $ —     $ 985  
     
 
                                                                                
SPINAL
   $ 712     $ 662     $ 644     $ 662     $ 2,680     $ 631     $ —     $ —     $ —     $ 631  
Core Spinal
     507       457       446       462       1,871       439       —       —       —       439  
Biologics
     205       205       198       200       809       192       —       —       —       192  
 
                                                                                
NEUROMODULATION
   $ 265     $ 272     $ 272     $ 276     $ 1,086     $ 261     $ —     $ —     $ —     $ 261  
 
                                                                                
DIABETES
   $ 193     $ 201     $ 203     $ 213     $ 810     $ 203     $ —     $ —     $ —     $ 203  
 
                                                                                
SURGICAL TECHNOLOGIES
   $ 142     $ 140     $ 150     $ 169     $ 601     $ 149     $ —     $ —     $ —     $ 149  
     
 
                                                                                
RESTORATIVE THERAPIES GROUP
   $ 1,312     $ 1,275     $ 1,269     $ 1,320     $ 5,177     $ 1,244     $ —     $ —     $ —     $ 1,244  
     
 
                                                                                
TOTAL
   $ 2,391     $ 2,297     $ 2,236     $ 2,442     $ 9,366     $ 2,229     $ —     $ —     $ —     $ 2,229  
     
 
                                                                                
ADJUSTMENTS:
                                                                                
 
                                                                                
CURRENCY IMPACT
   $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —     $ —  
     
 
                                                                                
COMPARABLE OPERATIONS
   $ 2,391     $ 2,297     $ 2,236     $ 2,442     $ 9,366     $ 2,229     $ —     $ —     $ —     $ 2,229  
     
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)
                                                                                 
($ millions)   FY10 QTR 1     FY10 QTR 2     FY10 QTR 3     FY10 QTR 4     FY10 Total     FY11 QTR 1     FY11 QTR 2     FY11 QTR 3     FY11 QTR 4     FY11 Total  
REPORTED REVENUE:
                                                                                
 
                                                                                
CARDIAC RHYTHM DISEASE MANAGEMENT
   $ 575     $ 557     $ 568     $ 622     $ 2,324     $ 535     $ —     $ —     $ —     $ 535  
Pacing Systems
     289       277       266       283       1,115       259       —       —       —       259  
Defibrillation Systems
     267       262       281       314       1,124       255               —       —       255  
Other
     19       18       21       25       85       21       —       —               21  
 
                                                                                
CARDIOVASCULAR
   $ 429     $ 444     $ 483     $ 493     $ 1,849     $ 476     $ —     $ —     $ —     $ 476  
Coronary & Peripheral
     250       263       286       271       1,070       274       —       —       —       274  
Structural Heart
     120       119       130       147       517       135       —       —       —       135  
Endovascular
     59       62       67       75       262       67       —       —       —       67  
 
                                                                                
PHYSIO-CONTROL
   $ 40     $ 45     $ 47     $ 63     $ 195     $ 31     $ —     $ —     $ —     $ 31  
     
 
                                                                                
CARDIAC & VASCULAR GROUP
   $ 1,044     $ 1,046     $ 1,098     $ 1,178     $ 4,368     $ 1,042     $ —     $ —     $ —     $ 1,042  
     
 
                                                                                
SPINAL
   $ 203     $ 200     $ 198     $ 218     $ 820     $ 198     $ —     $ —     $ —     $ 198  
Core Spinal
     189       185       184       202       761       183       —       —       —       183  
Biologics
     14       15       14       16       59       15       —       —       —       15  
 
                                                                                
NEUROMODULATION
   $ 108     $ 112     $ 122     $ 135     $ 474     $ 109     $ —     $ —     $ —     $ 109  
 
                                                                                
DIABETES
   $ 102     $ 99     $ 108     $ 119     $ 427     $ 109     $ —     $ —     $ —     $ 109  
 
                                                                                
SURGICAL TECHNOLOGIES
   $ 85     $ 84     $ 89     $ 104     $ 362     $ 86     $ —     $ —     $ —     $ 86  
     
 
                                                                                
RESTORATIVE THERAPIES GROUP
   $ 498     $ 495     $ 517     $ 576     $ 2,083     $ 502     $ —     $ —     $ —     $ 502  
     
 
                                                                                
TOTAL
   $ 1,542     $ 1,541     $ 1,615     $ 1,754     $ 6,451     $ 1,544     $ —     $ —     $ —     $ 1,544  
     
 
                                                                                
ADJUSTMENTS:
                                                                                
 
                                                                                
CURRENCY IMPACT (1)
   $ —     $ —     $ —     $ —     $ —     $ (21 )   $ —     $ —     $ —     $ (21 )
     
 
                                                                                
COMPARABLE OPERATIONS (1)
   $ 1,542     $ 1,541     $ 1,615     $ 1,754     $ 6,451     $ 1,565     $ —     $ —     $ —     $ 1,565  
     
 
(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  
    July 30,     July 31,  
    2010     2009  
    (in millions, except per share data)  
Net sales
   $ 3,773     $ 3,933  
 
                
Costs and expenses:
                
Cost of products sold
     893       966  
Research and development expense
     370       370  
Selling, general, and administrative expense
     1,334       1,368  
Restructuring charges
     —       62  
Certain litigation charges, net
     —       444  
Purchased in-process research and development (IPR&D) charges and certain acquisition-related costs
     15       —  
Other expense, net
     47       96  
Interest expense, net
     74       66  
 
            
Total costs and expenses
     2,733       3,372  
 
            
 
                
Earnings before income taxes
     1,040       561  
 
                
Provision for income taxes
     210       116  
 
            
 
                
Net earnings
   $ 830     $ 445  
 
            
 
                
Basic earnings per share
   $ 0.76     $ 0.40  
 
            
Diluted earnings per share
   $ 0.76     $ 0.40  
 
            
 
                
Basic weighted average shares outstanding
     1,086.1       1,112.6  
Diluted weighted average shares outstanding
     1,089.7       1,114.6  
 
                
Cash dividends declared per common share
   $ 0.225     $ 0.205  

 

 

MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP NET EARNINGS
TO CONSOLIDATED NON-GAAP NET EARNINGS
(Unaudited)
(in millions, except per share data)
                         
    Three months ended        
    July 30,     July 31,     Percentage  
    2010     2009     Change  
Net earnings, as reported
   $ 830     $ 445       87 %
Restructuring charges
     —       50 (c)        
Certain litigation charges, net
     —       360 (d)        
IPR&D and certain acquisition-related costs
     11 (a)     —          
Impact of authoritative convertible debt guidance on interest expense, net
     27 (b)     28 (b)        
 
                    
Non-GAAP net earnings
   $ 868     $ 883       -2 %
 
                    
Less estimated impact of extra week in the first quarter of fiscal year 2010
     —       (56 )(e)        
 
                    
Adjusted Non-GAAP net earnings
   $ 868     $ 827       5 %
 
                    
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP DILUTED EPS
TO CONSOLIDATED NON-GAAP DILUTED EPS
(Unaudited)
                         
    Three months ended        
    July 30,     July 31,     Percentage  
    2010     2009     Change  
Diluted EPS, as reported
   $ 0.76     $ 0.40       90 %
Restructuring charges
     —       0.04 (c)        
Certain litigation charges, net
     —       0.32 (d)        
IPR&D and certain acquisition-related costs
     0.01 (a)     —          
Impact of authoritative convertible debt guidance on interest expense, net
     0.02 (b)     0.03 (b)        
 
                    
Non-GAAP diluted EPS
   $ 0.80 (1)   $ 0.79       1 %
 
                    
Less estimated impact of extra week in the first quarter of fiscal year 2010
     —       (0.05 )(e)        
 
                    
Adjusted Non-GAAP diluted EPS
   $ 0.80     $ 0.74       8 %
 
                    
 
(1)   The data in this schedule has been intentionally rounded to the nearest $0.01 and therefore may not sum.
 
(a)   The $11 million ($0.01 per share) after-tax ($15 pre-tax) IPR&D and certain acquisition-related costs are 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. In addition to disclosing IPR&D and certain acquisition-related costs 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 IPR&D 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 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.
(b) 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 $28 million ($0.03 per share) for the three months ended July 30, 2010 and July 31, 2009, respectively. The pre-tax impact to interest expense, net was $43 million for both the three months ended July 30, 2010 and July 31, 2009. 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.
(c) 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. 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.
(d) The $360 million ($0.32 per share) after-tax ($444 million pre-tax) certain litigation charges, net are related to the resolution of all outstanding intellectual property litigation with Abbott Laboratories (Abbott). The terms of the 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. 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.
(e) While Medtronic cannot precisely calculate the impact of last year’s extra week across each of its businesses, Medtronic believes that by reducing last year’s revenue by approximately $200 million and net earnings by approximately $56 million better reflects the impact to net earnings ($0.05 per share) and the adjusted operational growth of the Company. 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 extra week in fiscal year 2010 compared to fiscal year 2011. 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 extra week impact 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 ADUSTED FOR Q1 FY10 EXTRA WEEK
(Unaudited)
(in millions)
                                                                 
                                                    Estimated     Constant  
    Three months ended             Currency Impact     Constant     Q1 FY10 Extra     Currency Extra  
    July 30,     July 31,     Reported     on Growth (a)     Currency     Week Impact     Week Adjusted  
    2010     2009     Growth     Dollar     Percentage     Growth (a)     on Growth (b)     Growth (b)  
Reported Revenue:
                                                                
Pacing Systems
   $ 473     $ 536       (12 )%   $ 3       — %     (12 )%     5 %     (7 )%
Defibrillation Systems
     722       775       (7 )     (8 )     (1 )     (6 )     5       (1 )
Other
     31       26       19       —       —       19       5       24  
 
                                                          
Cardiac Rhythm Disease Management
     1,226       1,337       (8 )     (5 )     —       (8 )     5       (3 )
Coronary & Peripheral
     372       353       5       (2 )     (1 )     6       5       11  
Structural Heart
     224       218       3       (4 )     (2 )     5       5       10  
Endovascular
     121       118       3       (3 )     (2 )     5       5       10  
 
                                                          
CardioVascular
     717       689       4       (9 )     (1 )     5       5       10  
Physio-Control
     84       97       (13 )     (1 )     (1 )     (12 )     5       (7 )
 
                                                          
Cardiac & Vascular Group
     2,027       2,123       (5 )     (15 )     (1 )     (4 )     5       1  
 
                                                          
Core Spinal
     622       696       (11 )     —       —       (11 )     5       (6 )
Biologics
     207       219       (5 )     1       1       (6 )     5       (1 )
 
                                                          
Spinal
     829       915       (9 )     1       1       (10 )     5       (5 )
Neuromodulation
     370       373       (1 )     (3 )     (1 )     —       5       5  
Diabetes
     312       295       6       (4 )     (1 )     7       5       12  
Surgical Technologies
     235       227       4       —       —       4       5       9  
 
                                                          
Restorative Therapies Group
     1,746       1,810       (4 )     (6 )     (1 )     (3 )     5       2  
 
                                                          
Total
   $ 3,773     $ 3,933       (4 )%   $ (21 )     — %     (4 )%     5 %     2 %(1)
 
                                                          
 
(1)   The percentages in this schedule have been intentionally rounded to the nearest whole percentage and therefore may not sum across.
 
(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.
 
(b)   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 one less week in the first quarter of fiscal year 2011 compared to fiscal year 2010 on revenue growth rates. While Medtronic cannot precisely calculate the impact of last year’s extra week across each of its businesses, Medtronic believes that adjusting this quarter’s growth rates by 500 basis points better reflects the adjusted operational growth. In addition, Medtronic management uses results of operations before currency translation and the impact of the extra week in Q1 FY10 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 ADUSTED FOR Q1 FY10 EXTRA WEEK
(Unaudited)
(in millions)
                                                                 
                                                    Estimated     Constant  
    Three months ended             Currency Impact     Constant     Q1 FY10 Extra     Currency Extra  
    July 30,     July 31,     Reported     on Growth (a)     Currency     Week Impact     Week Adjusted  
    2010     2009     Growth     Dollar     Percentage     Growth (a)     on Growth (b)     Growth (b)  
Reported Revenue:
                                                                
Pacing Systems
   $ 259     $ 289       (10 )%   $ 3       1 %     (11 )%     5 %     (6 )%
Defibrillation Systems
     255       267       (4 )     (8 )     (3 )     (1 )     5       4  
Other
     21       19       11       —       —       11       5       16  
 
                                                          
Cardiac Rhythm Disease Management
     535       575       (7 )     (5 )     (1 )     (6 )     5       (1 )
 
                                                                
Coronary & Peripheral
     274       250       10       (2 )     —       10       5       15  
Structural Heart
     135       120       13       (4 )     (3 )     16       5       21  
Endovascular
     67       59       14       (3 )     (5 )     19       5       24  
 
                                                          
CardioVascular
     476       429       11       (9 )     (2 )     13       5       18  
 
                                                                
Physio-Control
     31       40       (23 )     (1 )     (3 )     (20 )     5       (15 )
 
                                                          
Cardiac & Vascular Group
     1,042       1,044       —       (15 )     (1 )     1       5       6  
 
                                                          
 
                                                                
Core Spinal
     183       189       (3 )     —       —       (3 )     5       2  
Biologics
     15       14       7       1       7       —       5       5  
 
                                                          
Spinal
     198       203       (2 )     1       1       (3 )     5       2  
 
                                                                
Neuromodulation
     109       108       1       (3 )     (3 )     4       5       9  
Diabetes
     109       102       7       (4 )     (4 )     11       5       16  
Surgical Technologies
     86       85       1       —       —       1       5       6  
 
                                                          
Restorative Therapies Group
     502       498       1       (6 )     (1 )     2       5       7  
 
                                                          
 
                                                                
Total
   $ 1,544     $ 1,542       — %   $ (21 )     (1 )%     1 %     5 %     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.
 
(b)   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 one less week in the first quarter of fiscal year 2011 compared to fiscal year 2010 on revenue growth rates. While Medtronic cannot precisely calculate the impact of last year’s extra week across each of its businesses, Medtronic believes that adjusting this quarter’s growth rates by 500 basis points better reflects the adjusted operational growth. In addition, Medtronic management uses results of operations before currency translation and the impact of the extra week in Q1 FY10 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)
                 
    July 30,     April 30,  
    2010     2010  
    (in millions, except per share data)  
ASSETS
                
 
                
Current assets:
                
Cash and cash equivalents
   $ 1,364     $ 1,400  
Short-term investments
     2,553       2,375  
Accounts receivable, less allowances of $65 and $67, respectively
     3,230       3,335  
Inventories
     1,577       1,481  
Deferred tax assets, net
     558       544  
Prepaid expenses and other current assets
     715       704  
 
            
Total current assets
     9,997       9,839  
 
                
Property, plant, and equipment
     5,429       5,358  
Accumulated depreciation
     (3,009 )     (2,937 )
 
            
Property, plant, and equipment, net
     2,420       2,421  
 
                
Goodwill
     8,395       8,391  
Other intangible assets, net
     2,510       2,559  
Long-term investments
     5,057       4,632  
Other assets
     281       248  
 
            
Total assets
   $ 28,660     $ 28,090  
 
            
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Current liabilities:
                
Short-term borrowings
   $ 3,428     $ 2,575  
Accounts payable
     410       420  
Accrued compensation
     680       1,001  
Accrued income taxes
     197       235  
Other accrued expenses
     896       890  
 
            
Total current liabilities
     5,611       5,121  
 
                
Long-term debt
     7,080       6,944  
Long-term accrued compensation and retirement benefits
     481       516  
Long-term accrued income taxes
     634       595  
Long-term deferred tax liabilities, net
     42       89  
Other long-term liabilities
     211       196  
 
            
Total liabilities
     14,059       13,461  
 
                
Commitments and contingencies
     —       —  
Shareholders’ equity:
                
Preferred stock— par value $1.00
     —       —  
Common stock— par value $0.10
     108       110  
Retained earnings
     14,846       14,826  
Accumulated other comprehensive loss
     (353 )     (307 )
 
            
 
                
Total shareholders’ equity
     14,601       14,629  
 
            
Total liabilities and shareholders’ equity
   $ 28,660     $ 28,090  
 
            

 

 

MEDTRONIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Three months ended  
    July 30,     July 31,  
    2010     2009  
    (in millions)  
Operating Activities:
                
Net earnings
   $ 830     $ 445  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Depreciation and amortization
     187       188  
Amortization of discount on senior convertible notes
     43       43  
IPR&D charges
     15       —  
Deferred income taxes
     (22 )     68  
Stock-based compensation
     49       62  
Change in operating assets and liabilities, net of effect of acquisitions:
                
Accounts receivable, net
    68       37  
Inventories
     (73 )     (35 )
Accounts payable and accrued liabilities
     (322 )     (136 )
Other operating assets and liabilities
     30       (1 )
Certain litigation charges, net
     —       444  
Certain litigation payments
     —       (494 )
 
            
 
                
Net cash provided by operating activities
     805       621  
 
                
Investing Activities:
                
Acquisitions, net of cash acquired
     (62 )     —  
Additions to property, plant, and equipment
     (108 )     (150 )
Purchases of marketable securities
     (1,747 )     (1,156 )
Sales and maturities of marketable securities
     1,183       860  
Other investing activities, net
     (55 )     (83 )
 
            
 
                
Net cash used in investing activities
     (789 )     (529 )
 
                
Financing Activities:
                
Change in short-term borrowings, net
     816       148  
Payments on long-term debt
     (2 )     (6 )
Dividends to shareholders
     (245 )     (228 )
Issuance of common stock
     25       36  
Repurchase of common stock
     (640 )     (344 )
 
            
 
                
Net cash used in financing activities
     (46 )     (394 )
 
                
Effect of exchange rate changes on cash and cash equivalents
     (6 )     53  
 
            
 
                
Net change in cash and cash equivalents
     (36 )     (249 )
 
                
Cash and cash equivalents at beginning of period
     1,400       1,271  
 
            
 
                
Cash and cash equivalents at end of period
   $ 1,364     $ 1,022  
 
            
 
                
Supplemental Cash Flow Information
                
Income taxes paid
   $ 261     $ 68  
Interest paid
     60       58