Nov 20, 2011

Medtronic Reports Second Quarter Earnings

Revenue of $4.1 Billion Grew 3% on a Constant Currency Basis, 6% as Reported
International Revenue Grew 6% on a Constant Currency Basis, 14% as Reported
Emerging Market Revenue Grew 19% on a Constant Currency Basis, 21% as Reported
Non-GAAP Diluted EPS of $0.84 Grew 2%; GAAP Diluted EPS of $0.82 Grew 58%

MINNEAPOLIS--(BUSINESS WIRE)--Nov. 22, 2011-- Medtronic, Inc. (NYSE:MDT) today announced financial results for its second quarter of fiscal year 2012, which ended October 28, 2011. The company...

MINNEAPOLIS--(BUSINESS WIRE)--Nov. 22, 2011-- Medtronic, Inc. (NYSE:MDT) today announced financial results for its second quarter of fiscal year 2012, which ended October 28, 2011.

The company reported worldwide second quarter revenue of $4.132 billion, compared to the $3.903 billion reported in the second quarter of fiscal year 2011, an increase of 6 percent as reported or 3 percent after adjusting for a $123 million favorable foreign currency impact. As reported, second quarter net earnings were $871 million, or $0.82 per diluted share, an increase of 54 percent and 58 percent, respectively, over the same period in the prior year. As detailed in the attached table, second quarter net earnings and diluted earnings per share on a non-GAAP basis were $898 million and $0.84, an increase of 1 percent and 2 percent, respectively, over the same period in the prior year.

International revenue of $1.832 billion increased 14 percent as reported, or 6 percent on a constant currency basis. International sales accounted for 44 percent of Medtronic’s worldwide revenue in the quarter. Emerging market revenue of $414 million increased 21 percent as reported, or 19 percent on a constant currency basis.

“I'm pleased we delivered another quarter of consistent growth in a difficult environment,” said Omar Ishrak, Medtronic chairman and chief executive officer. “A majority of our businesses, and nearly all of our geographies, contributed to this growth. As we continue to focus on innovation, globalization, and execution, I see tremendous opportunities for growth in the future.”

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 $2.207 billion, representing an increase of 5 percent as reported or 1 percent on a constant currency basis. Cardiac and Vascular Group International sales of $1.213 billion increased 12 percent as reported or 4 percent on a constant currency basis. Group revenue performance was driven by Pacing, AF Solutions, Coronary, Structural Heart, Endovascular and Peripheral sales offset by weaker sales in implantable cardioverter defibrillators (ICDs) and Physio-Control.

CRDM second quarter revenue of $1.268 billion increased 2 percent as reported or declined 2 percent on a constant currency basis. Second quarter revenue from ICDs was $708 million, down 8 percent on a constant currency basis, while pacing revenue was $511 million, an increase of 4 percent on a constant currency basis. Lower ICD sales due to declining procedure volumes were partially offset by continued growth of the AF Solutions and Pacing businesses.

CardioVascular revenue of $830 million grew 12 percent as reported or 8 percent on a constant currency basis. Revenue growth was driven by solid performance in Structural Heart and Endovascular. The Coronary, Structural Heart, Endovascular and Peripheral businesses grew worldwide revenue 3 percent, 8 percent, and 20 percent, respectively, on a constant currency basis. In Structural Heart, transcatheter valves continued to show strong growth. Endovascular revenue was driven by continued growth from the U.S. launch of the Endurant® stent graft for the treatment of abdominal aortic aneurysms (AAA) and growth in Peripheral, including drug-eluting balloons in international markets.

Physio-Control revenue of $109 million was flat as reported or down 3 percent on a constant currency basis. On November 17, 2011, the company entered into a definitive agreement under which affiliates of Bain Capital will acquire Physio-Control and related entities for cash in a transaction value estimated at $487 million. The transaction is expected to close in the first calendar quarter of 2012.

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 $1.925 billion, representing an increase of 6 percent as reported or 4 percent on a constant currency basis. Restorative Therapies Group International sales of $619 million increased 18 percent as reported or 10 percent on a constant currency basis. Group revenue was led by solid performances in Diabetes and Surgical Technologies, as well as improved growth in Neuromodulation, offset by continued challenges in Spinal.

Spinal revenue of $839 million declined 1 percent as reported or 3 percent on a constant currency basis. International sales for the Spinal business increased 17 percent as reported or 8 percent on a constant currency basis. Core Spinal revenue of $631 million, which includes core metal constructs, interspinous process decompression devices (IPDs), and balloon kyphoplasty (BKP) products, declined 3 percent on a constant currency basis. Biologics revenue of $208 million declined 4 percent on a constant currency basis, driven by declines in the sales of INFUSE®, partially offset by revenue growth from Other Biologics products.

Neuromodulation revenue of $421 million increased 9 percent as reported or 6 percent on a constant currency basis. Growth continues to be driven by strong sales of InterStim® Therapy, and Activa® PC and RC Deep Brain Stimulation (DBS) systems for movement disorders. The RestoreSensor™ spinal cord stimulator with its proprietary AdaptiveStim™ technology continues to perform well in Europe, and will be launching in the U.S. and Japan in the third quarter.

Diabetes revenue of $367 million grew 13 percent as reported or 10 percent on a constant currency basis. Growth in the quarter was driven by strong sales of durable pumps and continuous glucose monitoring (CGM) products. The Enlite™ CGM sensor is performing well in Europe, and the company recently announced the start of its U.S. IDE study for approval of this next generation sensor.

Surgical Technologies revenue of $298 million grew 22 percent as reported or 20 percent on a constant currency basis. Excluding its new Advanced Energy business, Surgical Technologies revenue grew 11 percent on a constant currency basis. Revenue growth was well balanced across the businesses’ core platforms of Power, Navigation, Monitoring, Imaging, and Hydrocephalus Management. In August, Medtronic completed the acquisitions of Salient Surgical Technologies, Inc. and PEAK Surgical, Inc., which will further leverage Medtronic’s strength in Surgical Technologies and drive growth in this business.

Revenue Outlook and Earnings Per Share Guidance

The Company today updated its revenue outlook and reiterated its diluted earnings per share (EPS) guidance for fiscal year 2012.

For the second half of fiscal year 2012, the Company expects revenue growth from continuing operations to remain in the range of 1 to 3 percent on a constant currency basis.

For fiscal year 2012, the Company continues to expect diluted EPS in the range of $3.43 to $3.50, which includes approximately $0.04 to $0.06 of dilution from the Ardian acquisition. After adjusting for Ardian dilution and 10 cents of one-time tax benefits received in fiscal year 2011, fiscal year 2012 diluted EPS growth is expected to be in the range of 6 percent to 9 percent.

EPS guidance excludes any unusual charges or gains that might occur during the fiscal year and the impact of the non-cash charge for convertible debt interest expense. The guidance provided only reflects information available to Medtronic at this time.

“We’ve aligned our organization to drive market leading execution and we continue to focus on extending our mission globally to expand growth,” said Ishrak. “Our commitment to developing innovative medical devices that add clinical value for our patients and economic value for our customers will continue to drive all that we do.”

Webcast Information

Medtronic will host a webcast today, November 22, 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, the timing and impact of business divestitures, closing timelines for pending acquisitions, anticipated benefits for recent acquisitions, product growth drivers, strategies for growth, and Medtronic’s future results of 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 2011.

                                             
MEDTRONIC, INC.
WORLD WIDE REVENUE
(Unaudited)
                                             

($ millions)
      FY11   FY11   FY11   FY11   FY11     FY12   FY12   FY12   FY12   FY12
      QTR 1   QTR 2   QTR 3   QTR 4   Total     QTR 1   QTR 2   QTR 3   QTR 4   Total
                                             
REPORTED REVENUE :                                            
                                                                 
CARDIAC RHYTHM DISEASE MANAGEMENT     $ 1,226   $ 1,248   $ 1,221   $ 1,315   $ 5,010     $ 1,253   $ 1,268   $ -   $ -   $ 2,521
Pacing Systems       473     472     450     506     1,901       508     511     -     -     1,019
Defibrillation Systems       722     745     735     760     2,962       697     708     -     -     1,405
AF & Other       31     31     36     49     147       48     49     -     -     97
                                             
CARDIOVASCULAR     $ 717   $ 738   $ 774   $ 879   $ 3,109     $ 850   $ 830   $ -   $ -   $ 1,681
Coronary       342     350     370     404     1,466       389     376     -     -     766
Structural Heart       224     237     241     274     977       275     266     -     -     541
Endovascular & Peripheral       151     151     163     201     666       186     188     -     -     374
                                             
PHYSIO-CONTROL     $ 84   $ 109   $ 104   $ 128   $ 425     $ 103   $ 109   $ -   $ -   $ 211
                                             
CARDIAC & VASCULAR GROUP     $ 2,027   $ 2,095   $ 2,099   $ 2,322   $ 8,544     $ 2,206   $ 2,207   $ -   $ -   $ 4,413
                                             
SPINAL     $ 829   $ 850   $ 861   $ 875   $ 3,414     $ 825   $ 839   $ -   $ -   $ 1,663
Core Spinal       622     634     626     648     2,530       610     631     -     -     1,240
Biologics       207     216     235     227     884       215     208     -     -     423
                                             
NEUROMODULATION     $ 370   $ 388   $ 401   $ 432   $ 1,592     $ 397   $ 421   $ -   $ -   $ 818
                                             
DIABETES     $ 312   $ 326   $ 341   $ 368   $ 1,347     $ 355   $ 367   $ -   $ -   $ 722
                                             
SURGICAL TECHNOLOGIES     $ 235   $ 244   $ 259   $ 298   $ 1,036     $ 266   $ 298   $ -   $ -   $ 565
                                             
RESTORATIVE THERAPIES GROUP     $ 1,746   $ 1,808   $ 1,862   $ 1,973   $ 7,389     $ 1,843   $ 1,925   $ -   $ -   $ 3,768
                                                                 
TOTAL     $ 3,773   $ 3,903   $ 3,961   $ 4,295   $ 15,933     $ 4,049   $ 4,132   $ -   $ -   $ 8,181
                                             
ADJUSTMENTS :                                            
                                             
CURRENCY IMPACT (1)                           $ 186   $ 123           $ 309
                                             
COMPARABLE OPERATIONS (1)     $ 3,773   $ 3,903   $ 3,961   $ 4,295   $ 15,933     $ 3,863   $ 4,009   $ -   $ -   $ 7,872
 
(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)

 

                                            

($ millions)
      FY11   FY11   FY11   FY11   FY11     FY12   FY12   FY12   FY12   FY12
      QTR 1   QTR 2   QTR 3   QTR 4   Total     QTR 1   QTR 2   QTR 3   QTR 4   Total
                                             
REPORTED REVENUE :                                            
                                                                 
CARDIAC RHYTHM DISEASE MANAGEMENT     $ 691   $ 699   $ 651   $ 650   $ 2,690     $ 649   $ 667   $ -   $ -   $ 1,315
Pacing Systems       214     210     182     207     812       217     220     -     -     436
Defibrillation Systems       467     481     458     425     1,831       411     423     -     -     834
AF & Other       10     8     11     18     47       21     24     -     -     45
                                             
CARDIOVASCULAR     $ 241   $ 248   $ 249   $ 289   $ 1,026     $ 266   $ 264   $ -   $ -   $ 530
Coronary       92     96     94     101     382       90     85     -     -     175
Structural Heart       89     91     92     101     373       100     98     -     -     198
Endovascular & Peripheral       60     61     63     87     271       76     81     -     -     157
                                             
PHYSIO-CONTROL     $ 53   $ 64   $ 56   $ 74   $ 248     $ 60   $ 63   $ -   $ -   $ 123
                                             
CARDIAC & VASCULAR GROUP     $ 985   $ 1,011   $ 956   $ 1,013   $ 3,964     $ 975   $ 994   $ -   $ -   $ 1,968
                                             
SPINAL     $ 631   $ 645   $ 646   $ 631   $ 2,553     $ 589   $ 599   $ -   $ -   $ 1,188
Core Spinal       439     445     431     429     1,744       398     414     -     -     811
Biologics       192     200     215     202     809       191     185     -     -     377
                                             
NEUROMODULATION     $ 261   $ 278   $ 282   $ 286   $ 1,108     $ 272   $ 295   $ -   $ -   $ 567
                                             
DIABETES     $ 203   $ 213   $ 219   $ 228   $ 863     $ 214   $ 228   $ -   $ -   $ 442
                                             
SURGICAL TECHNOLOGIES     $ 149   $ 148   $ 156   $ 179   $ 632     $ 156   $ 184   $ -   $ -   $ 341
                                             
RESTORATIVE THERAPIES GROUP     $ 1,244   $ 1,284   $ 1,303   $ 1,324   $ 5,156     $ 1,231   $ 1,306   $ -   $ -   $ 2,538
                                                                 
TOTAL     $ 2,229   $ 2,295   $ 2,259   $ 2,337   $ 9,120     $ 2,206   $ 2,300   $ -   $ -   $ 4,506
                                             
ADJUSTMENTS :                                            
                                             
CURRENCY IMPACT                           $ -   $ -           $ -
                                             
COMPARABLE OPERATIONS     $ 2,229   $ 2,295   $ 2,259   $ 2,337   $ 9,120     $ 2,206   $ 2,300   $ -   $ -   $ 4,506
 
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)
      FY11   FY11   FY11   FY11   FY11     FY12   FY12   FY12   FY12   FY12
      QTR 1   QTR 2   QTR 3   QTR 4   Total     QTR 1   QTR 2   QTR 3   QTR 4   Total
                                             
REPORTED REVENUE :                                            
                                                                 
CARDIAC RHYTHM DISEASE MANAGEMENT     $ 535   $ 549   $ 570   $ 665   $ 2,320     $ 604   $ 601   $ -   $ -   $ 1,206
Pacing Systems       259     262     268     299     1,089       291     291     -     -     583
Defibrillation Systems       255     264     277     335     1,131       286     285     -     -     571
AF & Other       21     23     25     31     100       27     25     -     -     52
                                             
CARDIOVASCULAR     $ 476   $ 490   $ 525   $ 590   $ 2,083     $ 584   $ 566   $ -   $ -   $ 1,151
Coronary       250     254     276     303     1,084       299     291     -     -     591
Structural Heart       135     146     149     173     604       175     168     -     -     343
Endovascular & Peripheral       91     90     100     114     395       110     107     -     -     217
                                             
PHYSIO-CONTROL     $ 31   $ 45   $ 48   $ 54   $ 177     $ 43   $ 46   $ -   $ -   $ 88
                                             
CARDIAC & VASCULAR GROUP     $ 1,042   $ 1,084   $ 1,143   $ 1,309   $ 4,580     $ 1,231   $ 1,213   $ -   $ -   $ 2,445
                                             
SPINAL     $ 198   $ 205   $ 215   $ 244   $ 861     $ 236   $ 240   $ -   $ -   $ 475
Core Spinal       183     189     195     219     786       212     217     -     -     429
Biologics       15     16     20     25     75       24     23     -     -     46
                                             
NEUROMODULATION     $ 109   $ 110   $ 119   $ 146   $ 484     $ 125   $ 126   $ -   $ -   $ 251
                                             
DIABETES     $ 109   $ 113   $ 122   $ 140   $ 484     $ 141   $ 139   $ -   $ -   $ 280
                                             
SURGICAL TECHNOLOGIES     $ 86   $ 96   $ 103   $ 119   $ 404     $ 110   $ 114   $ -   $ -   $ 224
                                             
RESTORATIVE THERAPIES GROUP     $ 502   $ 524   $ 559   $ 649   $ 2,233     $ 612   $ 619   $ -   $ -   $ 1,230
                                                                 
TOTAL     $ 1,544   $ 1,608   $ 1,702   $ 1,958   $ 6,813     $ 1,843   $ 1,832   $ -   $ -   $ 3,675
                                             
ADJUSTMENTS :                                            
                                             
CURRENCY IMPACT (1)                           $ 186   $ 123   $ -   $ -   $ 309
                                             
COMPARABLE OPERATIONS (1)     $ 1,544   $ 1,608   $ 1,702   $ 1,958   $ 6,813     $ 1,657   $ 1,709   $ -   $ -   $ 3,366
 
(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 28,     October 29,     October 28,     October 29,
      2011     2010     2011     2010
      (in millions, except per share data)
Net sales     $ 4,132       $ 3,903       $ 8,181       $ 7,677  
                                 
Costs and expenses:                                
Cost of products sold       1,014         961         2,020         1,855  
Research and development expense       379         373         750         743  
Selling, general, and administrative expense       1,437         1,371         2,845         2,705  
Certain litigation charges, net       -         279         -         279  
Acquisition-related items       (17 )       24         (4 )       39  
Amortization of intangible assets       86         85         174         167  
Other expense (income)       142         (9 )       251         (44 )
Interest expense, net       38         67         70         141  
Total costs and expenses       3,079         3,151         6,106         5,885  
                                 
Earnings before income taxes       1,053         752         2,075         1,792  
                                 
Provision for income taxes       182         186         383         396  
                                 
Net earnings     $ 871       $ 566       $ 1,692       $ 1,396  
                                 
Basic earnings per share     $ 0.82       $ 0.52       $ 1.60       $ 1.29  
Diluted earnings per share     $ 0.82       $ 0.52       $ 1.59       $ 1.28  
                                 
Basic weighted average shares outstanding       1,058.1         1,080.1         1,060.6         1,083.1  
Diluted weighted average shares outstanding       1,063.1         1,083.7         1,066.2         1,086.7  
                                 
Cash dividends declared per common share     $ 0.2425       $ 0.2250       $ 0.4850       $ 0.4500  
                                         
 
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 28,       October 29,       Percentage
      2011       2010       Change
                           
Net earnings, as reported     $ 871       $ 566       54%
Certain litigation charges, net       -         278

(d)

      
Certain acquisition-related items       14 (a)       16

(e)

      
Impact of authoritative convertible debt guidance on interest expense, net       13 (b)       27 (b)      
Non-GAAP net earnings     $ 898

(c)

     $

887

       1%
                           
                           
                           
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP DILUTED EPS
TO CONSOLIDATED NON-GAAP DILUTED EPS
(Unaudited)
                           
      Three months ended        
      October 28,       October 29,       Percentage
      2011       2010       Change
                           
Diluted EPS, as reported     $ 0.82       $ 0.52       58%
Certain litigation charges, net       -         0.26

(d)

      
Certain acquisition-related items       0.01 (a)       0.01

(e)

      
Impact of authoritative convertible debt guidance on interest expense, net       0.01 (b)       0.02 (b)      
Non-GAAP diluted EPS     $ 0.84

(c)

     $ 0.82 (1)     2%
                           

(1) The data in this schedule has been intentionally rounded to the nearest $0.01 and therefore may not sum.
 

(a) The $14 million ($0.01 per share) after-tax ($16 million pre-tax) certain acquisition-related items includes a $5 million after-tax ($7 million pre-tax) charge for transaction costs related to the divestiture of our Physio-Control business, and a $9 million after-tax ($9 million pre-tax) charge related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009. In addition to disclosing certain acquisition-related items 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 certain acquisition-related items. 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 certain acquisition-related items 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 for convertible debt accounting has resulted in an after-tax impact to net earnings of $13 million ($0.01 per share) and $27 million ($0.02 per share) for the three months ended October 28, 2011 and October 29, 2010, respectively. The pre-tax impact to interest expense, net was $21 million and $43 million for the three months ended October 28, 2011 and October 29, 2011, 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.
 

(c) Included in our non-GAAP net earnings is a $5 million after-tax ($5 million pre-tax) charge for transaction costs incurred related to the acquisitions of Salient Surgical Technologies, Inc. (Salient) and PEAK Surgical, Inc. (PEAK), and a non-cash gain of $38 million after-tax ($38 million pre-tax) related to previously held investments in Salient and PEAK, which are included in acquisition-related items on our condensed consolidated statement of earnings. The Company has included these items in its non-GAAP net earnings as it expects the overall impact from Salient and PEAK to be neutral to its fiscal year 2012 net earnings after accounting for the expected dilution in the second half of this fiscal year. 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 net impact of the Salient and PEAK acquisitions. 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. 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.
 

(d) 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, 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) The $16 million ($0.01 per share) after-tax ($24 million pre-tax) certain acquisition-related items include acquisition-related legal fees, severance costs, change in control costs, and contract termination costs related to the acquisition of ATS Medical, Inc. (ATS Medical) that were expensed in the period. In addition to disclosing certain acquisition-related items 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 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 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.
 
 
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 28,       October 29,       Percentage
      2011       2010       Change
                           
Net earnings, as reported     $ 1,692       $ 1,396       21%
Certain litigation charges, net       -         278

(d)

      
Certain acquisition-related items       25 (a)       27

(e)

      
Impact of authoritative convertible debt guidance on interest expense, net       26 (b)       54 (b)      
Non-GAAP net earnings     $ 1,743

(c)

     $ 1,755       -1%
                           
                           
MEDTRONIC, INC.
RECONCILIATION OF CONSOLIDATED GAAP DILUTED EPS
TO CONSOLIDATED NON-GAAP DILUTED EPS
(Unaudited)
                           
                           
      Six months ended        
      October 28,       October 29,       Percentage
      2011       2010       Change
                           
Diluted EPS, as reported     $ 1.59       $ 1.28       24%
Certain litigation charges, net       -         0.26

(d)

      
Certain acquisition-related items       0.02 (a)       0.02

(e)

      
Impact of authoritative convertible debt guidance on interest expense, net       0.02 (b)       0.05 (b)      
Non-GAAP diluted EPS     $ 1.63

(c)

     $ 1.61       1%
                           

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.
                           

(a) The $25 million ($0.02 per share) after-tax ($29 million pre-tax) certain acquisition-related items includes an $8 million after-tax ($12 million pre-tax) charge for transaction costs related to the divestiture of our Physio-Control business, and a $17 million after-tax ($17 million pre-tax) charge related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009. In addition to disclosing certain acquisition-related items 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 certain acquisition-related items. 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 certain acquisition-related items 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 FASB authoritative guidance for convertible debt accounting has resulted in an after-tax impact to net earnings of $26 million ($0.02 per share) and $54 million ($0.05 per share) for the six months ended October 28, 2011 and October 29, 2010, respectively.  The pre-tax impact to interest expense, net was $42 million and $86 million for the six months ended October 28, 2011 and October 29, 2010, 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.
 

(c) Included in our non-GAAP net earnings is a $5 million after-tax ($5 million pre-tax) charge for transaction costs incurred related to the acquisitions of Salient Surgical Technologies, Inc. (Salient) and PEAK Surgical, Inc. (PEAK), and a non-cash gain of $38 million after-tax ($38 million pre-tax) related to previously held investments in Salient and PEAK, which are included in acquisition-related items on our condensed consolidated statement of earnings. The Company has included these items in its non-GAAP net earnings as it expects the overall impact from Salient and PEAK to be neutral to its fiscal year 2012 net earnings after accounting for the expected dilution in the second half of this fiscal year. 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 net impact of the Salient and PEAK acquisitions. 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. 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.
 

(d) 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, 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) The $27 million ($0.02 per share) after-tax ($39 million pre-tax) certain acquisition-related items 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) expenses related to the acquisition of ATS Medical, Inc. (ATS Medical). 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 certain acquisition-related items as technological feasibility has not yet been reached and such technology has no future alternative use. The certain acquisition-related items include acquisition-related legal fees and severance costs, change in control costs, and contract termination costs related to the acquisition of ATS Medical that were expensed in the period.  In addition to disclosing certain acquisition-related items 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 certain acquisition-related items. 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 certain acquisition-related items 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.
 
 
MEDTRONIC, INC.
RECONCILIATION OF WORLDWIDE REVENUE GROWTH TO CONSTANT CURRENCY GROWTH
(Unaudited)
(in millions)
                                         
      Three months ended         Currency Impact     Constant  
      October 28,   October 29,   Reported     on Growth (a)     Currency  
      2011   2010   Growth     Dollar   Percentage     Growth (a)  
                                         
Reported Revenue:                                        
Pacing Systems     $ 511   $ 472   8   %   $ 22   4   %   4   %
Defibrillation Systems       708     745   (5 )       21   3       (8 )  
AF & Other       49     31   58         1   3       55    
Cardiac Rhythm Disease Management       1,268     1,248   2         44   4       (2 )  
                                         
Coronary       376     350   7         17   4       3    
Structural Heart       266     237   12         10   4       8    
Endovascular & Peripheral       188     151   25         7   5       20    
CardioVascular       830     738   12         34   4       8    
                                         
Physio-Control       109     109   -         3   3       (3 )  
Cardiac & Vascular Group       2,207     2,095   5         81   4       1    
                                         
Core Spinal       631     634   -         17   3       (3 )  
Biologics       208     216   (4 )       1   -       (4 )  
Spinal       839     850   (1 )       18   2       (3 )  
                                         
Neuromodulation       421     388   9         10   3       6    
Diabetes       367     326   13         9   3       10    
Surgical Technologies       298     244   22         5   2       20    
Restorative Therapies Group       1,925     1,808   6         42   2       4    
                                         
Total     $ 4,132   $ 3,903   6   %   $ 123   3   %   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 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 28,   October 29,   Reported     on Growth (a)     Currency  
      2011   2010   Growth     Dollar   Percentage     Growth (a)  
                                           
Reported Revenue:                                          
Pacing Systems     $ 291   $ 262   11   %   $ 22   8   %   3   %
Defibrillation Systems       285     264   8         21   8       -    
AF & Other       25     23   9         1   5       4    
Cardiac Rhythm Disease Management       601     549   9         44   8       1    
                                           
Coronary       291     254   15         17   7       8    
Structural Heart       168     146   15         10   7       8    
Endovascular & Peripheral       107     90   19         7   8       11    
CardioVascular       566     490   16         34   7       9    
                                           
Physio-Control       46     45   2         3   6       (4 )  
Cardiac & Vascular Group       1,213     1,084   12         81   8       4    
                                           
Core Spinal       217     189   15         17   9       6    
Biologics       23     16   44         1   6       38    
Spinal       240     205   17         18   9       8    
                                           
Neuromodulation       126     110   15         10   10       5    
Diabetes       139     113   23         9   8       15    
Surgical Technologies       114     96   19         5   5       14    
Restorative Therapies Group       619     524   18         42   8       10    
                                           
Total     $ 1,832   $ 1,608   14   %   $ 123   8   %   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 EMERGING MARKET REVENUE GROWTH TO CONSTANT CURRENCY GROWTH
(Unaudited)
(in millions)
                                             
      Three months ended           Currency Impact     Constant  
      October 28,   October 29,   Reported     on Growth (a)     Currency  
      2011   2010   Growth     Dollar   Percentage     Growth (a)  
                                             
Emerging Market Revenue (b)     $ 414   $ 342   21   %   $ 8   2   %   19   %
                                             

(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) Emerging Market Revenue includes revenues from certain countries located in Central and Eastern Europe, Middle East, Africa, Latin America, and Asia.
                                             
 
MEDTRONIC, INC.
RECONCILIATION OF SURGICAL TECHNOLOGIES REVENUE GROWTH TO CONSTANT CURRENCY
REVENUE GROWTH ADJUSTED FOR REVENUE FROM NEW ADVANCED ENERGY BUSINESS
(Unaudited)
(in millions)
                     
                     
    Three months ended     Three months ended   Percentage
    October 28, 2011     October 29, 2010   Change
                     
Surgical Technologies revenue, as reported   $ 298       $ 244     22 %
Foreign currency impact     (5 )       -    

 
Advanced Energy business revenue     (21 )       -      
Surgical Technologies revenue, adjusted   $ 272   (a)   $ 244     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 new Advanced Energy business on Surgical Technologies’ revenue growth. In addition, Medtronic management uses Surgical Technologies revenue adjusted for foreign currency translation and the new Advanced Energy business to evaluate operational performance of the Company. 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 28,    

 April 29, 
      2011     2011
      (in millions, except per share data)

ASSETS

                
                 
Current assets:                
Cash and cash equivalents     $ 1,048       $ 1,382  
Short-term investments       1,118         1,046  
Accounts receivable, less allowances of $105 and $97, respectively       3,837         3,822  
Inventories       1,840         1,695  
Deferred tax assets, net       587         605  
Prepaid expenses and other current assets       584         567  
                 
Total current assets       9,014         9,117  
                 
Property, plant, and equipment       6,065         5,817  
Accumulated depreciation       (3,530 )       (3,306 )
Property, plant, and equipment, net       2,535         2,511  
                 
Goodwill       9,944         9,537  
Other intangible assets, net       2,875         2,777  
Long-term investments       7,013         6,120  
Other assets       372         362  
                 
Total assets     $ 31,753       $ 30,424  
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

                
                 
Current liabilities:                
Short-term borrowings     $ 2,050       $ 1,723  
Accounts payable       543         511  
Accrued compensation       765         896  
Accrued income taxes       83         50  
Other accrued expenses       1,293         1,534  
                 
Total current liabilities       4,734         4,714  
                 
Long-term debt       8,222         8,112  
Long-term accrued compensation and retirement benefits       505         480  
Long-term accrued income taxes       841         496  
Long-term deferred tax liabilities, net       293         220  
Other long-term liabilities       419         434  
                 
Total liabilities       15,014         14,456  
                 
Commitments and contingencies                
                 
Shareholders’ equity:                
Preferred stock— par value $1.00       -         -  
Common stock— par value $0.10       106         107  
Retained earnings       16,790         16,085  
Accumulated other comprehensive loss       (157 )       (224 )
                 
Total shareholders’ equity       16,739         15,968  
                 
Total liabilities and shareholders’ equity     $ 31,753       $ 30,424  
                     
 

MEDTRONIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
     
    Six months ended
    October 28,   October 29,
    2011   2010
    (in millions)
Operating Activities:            
Net earnings   $ 1,692     $ 1,396  
Adjustments to reconcile net earnings to net cash provided by operating activities:            
Depreciation and amortization     437       402  
Amortization of discount on senior convertible notes     42       86  
Acquisition-related items     17       15  
Provision for doubtful accounts     32       18  
Deferred income taxes     (58 )     (77 )
Stock-based compensation     90       104  
Change in operating assets and liabilities, net of effect of acquisitions:            
Accounts receivable, net     (119 )     (72 )
Inventories     (147 )     (108 )
Accounts payable and accrued liabilities     (354 )     (429 )
Other operating assets and liabilities     606       94  
Certain litigation charges, net     -       279  
Certain litigation payments     -       (5 )
             
Net cash provided by operating activities     2,238       1,703  
             
Investing Activities:            
Acquisitions, net of cash acquired     (617 )     (452 )
Purchase of intellectual property     (8 )     (17 )
Additions to property, plant, and equipment     (282 )     (258 )
Purchases of marketable securities     (3,866 )     (3,425 )
Sales and maturities of marketable securities     3,008       2,793  
Other investing activities, net     9       (80 )
             
Net cash used in investing activities     (1,756 )     (1,439 )
             
Financing Activities:            
Change in short-term borrowings, net     302       1,181  
Payments on long-term debt     (15 )     (402 )
Dividends to shareholders     (514 )     (488 )
Issuance of common stock     45       42  
Repurchase of common stock     (600 )     (760 )
             
Net cash used in financing activities     (782 )     (427 )
             
Effect of exchange rate changes on cash and cash equivalents     (34 )     19  
             
Net change in cash and cash equivalents     (334 )     (144 )
             
Cash and cash equivalents at beginning of period     1,382       1,400  
             
Cash and cash equivalents at end of period   $ 1,048     $ 1,256  
             
Supplemental Cash Flow Information            
Cash paid for:            
Income taxes   $ 99     $ 552  
Interest     161       219  
             

 

Source: Medtronic, Inc.

Medtronic, Inc.
Amy von Walter, 763-505-3780 (Public Relations)
Jeff Warren, 763-505-2696 (Investor Relations)