Medtronic Reports First Quarter Revenue of $3.9 Billion

Medtronic, Inc. (NYSE:MDT) today announced financial results for its first quarter of fiscal year 2010, which ended July 31, 2009.

The company reported first quarter revenue of $3.933 billion, a 6 percent increase compared to the $3.706 billion reported in the first quarter of fiscal year 2009. Revenue growth on a constant currency basis was 10 percent after adjusting for a $145 million negative foreign currency translation. This quarter contained 14 weeks, one more week than the first quarter of fiscal year 2009.

As reported, first quarter net earnings were $445 million, or $0.40 per diluted share, both decreasing 38 percent over the same period in the prior year. As detailed in the attached table, adjusting for restructuring and certain litigation charges, and the impact of adopting a new accounting standard for non-cash interest expense on convertible debt, first quarter net earnings and diluted earnings per share on a non-GAAP basis were $883 million and $0.79, an increase of 9 percent and 10 percent, respectively, over the same period in the prior year.

“I am pleased with our solid first quarter performance and the progress it represents toward fulfilling our full year commitments,” said Bill Hawkins, Medtronic chairman and chief executive officer. “I am confident that our efforts to fuel innovation and develop a strong product pipeline positions us well for sustained growth during the remainder of the fiscal year and beyond.”

Revenue outside the United States of $1.542 billion grew 6 percent compared to the same period last year, or 16 percent on a constant currency basis, accounting for 39 percent of Medtronic’s worldwide revenue.

Cardiac Rhythm Disease Management
Cardiac Rhythm Disease Management (CRDM) revenue of $1.337 billion grew nearly 3 percent, or 7 percent after adjusting for an unfavorable $53 million foreign exchange impact. Revenue from implantable cardioverter defibrillators was $775 million, while pacing revenue was $536 million in the quarter. Outside the United States, CRDM revenue grew 10 percent on a constant currency basis, driven by significant growth in Europe and China.

Spinal
Spinal revenue of $915 million grew 7 percent, or 8 percent after adjusting for an unfavorable $17 million foreign exchange impact. Sales of Core Spinal products, which includes Kyphon, increased 11 percent and Spinal revenue outside of the United States increased 24 percent, both on a constant currency basis. Biologics revenue remained flat when compared to the same period last year on a constant currency basis.

CardioVascular
CardioVascular revenue of $689 million grew 9 percent, or 15 percent after adjusting for an unfavorable $37 million currency translation impact. Growth in the CardioVascular business was driven by strong global performance in both the Endovascular and Structural Heart Disease product lines, which grew 41 percent and 16 percent, respectively, on a constant currency basis. The business unit launched the Endeavor® Drug-eluting Stent in Japan during the quarter which helped drive Coronary revenue to $353 million for the quarter.

Neuromodulation
Neuromodulation revenue grew 7 percent to $373 million, or 11 percent after adjusting for an unfavorable $13 million currency translation impact. This growth was fueled by strong sales of the InterStim® Therapy, Activa® Deep Brain Stimulation Therapy and the launch of Activa PC and RC, which are now available in both the United States and Europe.

Diabetes
Diabetes revenue of $295 million grew 10 percent, or 15 percent after adjusting for an unfavorable $14 million currency translation impact, on strong U.S. insulin pump and continuous glucose monitoring (CGM) product sales, as well as sales of consumables in Europe. International sales grew 14 percent on a constant currency basis over the same quarter last year. During the quarter, the business unit launched the Paradigm Veo pump in the United Kingdom and Ireland, the first semi-closed loop product, extending its lead as the only company with a proprietary CGM Sensor Augmented Pump.

Surgical Technologies
Revenue from Surgical Technologies reached $227 million, up 12 percent, or 16 percent after adjusting for an unfavorable $7 million currency translation impact. Revenue in the business unit grew on sales of the monitoring product line, the launch of NIM 3.0 a new nerve integrity monitor and strong ear, nose and throat and neurological power disposable sales. In Europe, sales of navigation equipment used in both brain and spinal surgery procedures were also strong during the quarter.

Physio-Control
Physio-Control reported $97 million in revenue, up 3 percent, or 7 percent after adjusting for an unfavorable $4 million currency translation impact. The launch of the LIFEPAK 15 monitor/defibrillator contributed to revenue growth in the quarter.

“Our solid performance across all businesses demonstrates the strength of our product portfolio and geographic diversity,” said Hawkins. “Our focused efforts to provide innovative solutions to the growing and global challenge of chronic disease are enabling us to bring our therapies to more people than ever before."

Webcast Information
Medtronic will host a webcast today, Aug. 25, 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 Investor Relations link on the Medtronic home page at www.medtronic.com and this earnings release will be archived at www.medtronic.com/newsroom. Within 24 hours, a replay of the webcast and a transcript of the company’s prepared remarks will be available in the “Events and Presentations” section of the Investor Relations homepage.

About Medtronic
Medtronic, Inc., headquartered in Minneapolis, is the world’s leading medical technology company, alleviating pain, restoring health and extending life for people with chronic disease. Its Internet address is www.medtronic.com.

This press release contains forward-looking statements regarding our operating momentum, new products and other developments, which are subject to risks and uncertainties, such as competitive factors, difficulties and delays inherent in the development, manufacturing, marketing and sale of medical products, government regulation, general economic conditions and other risks and uncertainties described in Medtronic’s Annual Report on Form 10-K for the year ended April 24, 2009.Actual results may differ materially from anticipated results. Medtronic does not undertake to update its forward-looking statements. Unless otherwise noted, all comparisons made in this news release are on an “as reported basis,” not on a constant currency basis, and references to quarterly figures increasing or decreasing are in comparison to the first quarter of fiscal year 2009.

(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.

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.

(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.

(a) The $50 million ($0.04 per share) after-tax ($69 million pre-tax) restructuring charge is the net impact of a $52 million after-tax charge related to restructuring initiatives that the Company began in the fourth quarter of fiscal year 2009, offset by a $2 million after-tax net reversal of excess reserves related to the global realignment initiative that began in the fourth quarter of fiscal year 2008. The fiscal year 2009 initiatives are designed to streamline operations and further align resources around the Company’s higher growth opportunities. This initiative impacts most businesses and certain corporate functions. In the first quarter of fiscal year 2010, the Company recognized expense associated with compensation and early retirement benefits provided to employees which could not be accrued in the fourth quarter of fiscal year 2009. In addition, the Company recorded $4 million of the after-tax expense ($7 million pre-tax) within cost of products sold related to inventory write-offs and production-related asset impairments associated with these restructuring activities. The $2 million after-tax net reversal is primarily a result of a $5 million after-tax reversal due to favorable severance negotiations with certain employee populations outside the U.S. as well as a higher than expected percentage of employees identified for elimination finding positions elsewhere within the Company partially offset by a $3 million after-tax charge the Company recorded in the first quarter of fiscal year 2010 related to the further write-down of a non-inventory related asset resulting from the continued decline in the international real estate market. In addition to disclosing restructuring charges that are determined in accordance with U.S. generally accepted accounting principles (GAAP), Medtronic management believes that in order to properly understand its short-term and long-term financial trends, investors may find it useful to consider the impact of excluding these restructuring charges. Management believes that the resulting non-GAAP financial measure provides useful information to investors regarding the underlying business trends and performance of the Company’s ongoing operations and is useful for period over period comparisons of such operations. Medtronic management eliminates these restructuring charges when evaluating the operating performance of the Company. Investors should consider this non-GAAP measure in addition to, and not as a substitute for, financial performance measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP financial measure may not be the same as similar measures presented by other companies.

(b) The $360 million ($0.32 per share) after-tax ($444 million pre-tax) certain litigation charges 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 to be made to evYsio Medical Devices, LLC (evYsio). In addition, a $2 million payment is to be made to evYsio in order to expand the definition of the license field from evYsio. In addition to disclosing certain litigation charges that are determined in accordance with U.S. GAAP, Medtronic management believes that in order to properly understand its short-term and long-term financial trends, investors may find it useful to consider the impact of excluding these certain litigation charges. Management believes that the resulting non-GAAP financial measure provides useful information to investors regarding the underlying business trends and performance of the Company’s ongoing operations and is useful for period over period comparisons of such operations. Medtronic management eliminates these certain litigation charges when evaluating the operating performance of the Company. Investors should consider this non-GAAP measure in addition to, and not as a substitute for, financial performance measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP financial measure may not be the same as similar measures presented by other companies.

(c) The adoption of Financial Accounting Standards Board (FASB) Staff Position (FSP) Accounting Principles Board (APB) Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB No. 14-1), has resulted in an after-tax impact to net earnings of $28 million ($0.03 per share) and $24 million ($0.02 per share) for the three months ended July 31, 2009 and July 25, 2008, respectively. The pre-tax impact to interest expense, net was $43 million and $38 million for the three months ended July 31, 2009 and July 25, 2008, respectively. In addition to disclosing the financial statement impact of FSP APB No. 14-1 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 FSP APB No. 14-1. 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 FSP APB No. 14-1 when evaluating the operating performance of the Company. Investors should consider this non-GAAP measure in addition to, and not as a substitute for, financial performance measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP financial measure may not be the same as similar measures presented by other companies.

(d) The $66 million ($0.06 per share) after-tax ($96 million pre-tax) restructuring charge is related to a global realignment initiative that the Company began in the fourth quarter of fiscal year 2008. This initiative focuses on shifting resources to those areas where the Company has the greatest opportunities for growth and attempts to streamline operations to drive operating leverage. The global realignment initiative impacts most businesses and certain corporate functions. The majority of the expense recognized in the first quarter of fiscal year 2009 was related to the execution of our global realignment initiative outside the United States. This includes the realignment of personnel throughout Europe and the Emerging Markets and the closure of an existing facility in the Netherlands that has been integrated into the U.S. operations. The remainder of the expense is associated with compensation provided to employees identified in the fourth quarter of fiscal year 2008 whose employment terminated with the Company in the first quarter of fiscal year 2009. These incremental costs were not accrued in the fourth quarter of fiscal year 2008 because these benefits had not yet been communicated to the impacted employees. In addition to disclosing restructuring charges that are determined in accordance with U.S. generally accepted accounting principles (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.

(a) Medtronic believes that in order to properly understand Medtronic's short-term and long-term financial trends, investors may wish to consider the impact of foreign currency translation on revenue. In addition, Medtronic management uses results of operations before currency translation to evaluate the operational performance of the Company and as a basis for strategic planning. Investors should consider these non-GAAP measures in addition to, an not as a substitute for, financial performance measures prepared in accordance with U.S. GAAP.

(a) Medtronic believes that in order to properly understand Medtronic's short-term and long-term financial trends, investors may wish to consider the impact of foreign currency translation on revenue. In addition, Medtronic management uses results of operations before currency translation to evaluate the operational performance of the Company and as a basis for strategic planning. Investors should consider these non-GAAP measures in addition to, an not as a substitute for, financial performance measures prepared in accordance with U.S. GAAP.