STJ ST. Jude Medical, Inc.

St. Jude Medical, Inc. (NYSE: STJ) today reported sales and net earnings for the third quarter ended October 3, 2009.

Third Quarter Sales

The Company reported net sales of $1.160 billion in the third quarter of 2009, an increase of 7 percent compared with the $1.084 billion in the third quarter of 2008. Foreign currency translation comparisons decreased third quarter sales by approximately $29 million.

Commenting on the Company’s results, St. Jude Medical Chairman, President and Chief Executive Officer Daniel J. Starks said, “Despite some challenging dynamics experienced during the third quarter, St. Jude Medical’s revenue grew approximately 10 percent and we delivered 15 percent growth in adjusted earnings per share on a constant currency basis. International revenue grew 15 percent in the quarter, constant currency, but U.S. revenue was lower than expected. Related to our U.S. growth, we have identified approximately 50 U.S. hospitals who did not participate in normal quarter end purchases of cardiac rhythm management devices due to a variety of financial considerations, which we will discuss further on our earnings call this morning. We are lowering our expectations for our fourth quarter results to accommodate the issues we are experiencing from a limited portion of our customer base in the U.S., but we are confident that our long term growth program is on track.”

Cardiac Rhythm Management (CRM)

Total CRM sales, which include implantable cardioverter defibrillator (ICD) and pacemaker products, were $690 million for the third quarter of 2009, a 2 percent increase compared with the third quarter of 2008. On a currency neutral basis, total CRM sales grew 5 percent over the comparable quarter in 2008.

Of that total, ICD product sales were $389 million in the third quarter, a 2 percent increase compared with the third quarter of 2008. ICD revenue grew 5 percent after adjusting for the impact of foreign currency.

Third quarter pacemaker sales were $301 million, an increase of 1 percent from the comparable quarter of 2008. Pacemaker revenue growth was 4 percent after adjusting for the impact of foreign currency.

Atrial Fibrillation (AF)

AF product sales for the third quarter of 2009 totaled $156 million, a 16 percent increase over the third quarter of 2008. On a currency neutral basis, total AF sales grew 19 percent over the comparable quarter in 2008.

Neuromodulation

Neuromodulation product sales were $84 million in the third quarter of 2009, up 31 percent from the comparable quarter of 2008. Neuromodulation sales were up 34 percent in the quarter after adjusting for the impact of foreign currency.

Cardiovascular

Total cardiovascular sales, which primarily include vascular closure and heart valve products, were $230 million for the third quarter of 2009, an 11 percent increase over the third quarter of 2008. On a currency neutral basis, total cardiovascular sales grew 13 percent over the comparable quarter in 2008. This product category includes sales of products that St. Jude Medical acquired from Radi Medical Systems AB in December 2008.

Sales of vascular closure products in the third quarter of 2009 were $91 million, a 2 percent increase over the third quarter of 2008. Vascular closure product sales grew 6 percent after adjusting for the impact of foreign currency.

Heart valve product sales for the third quarter of 2009 were $80 million, a 3 percent increase compared with the third quarter of 2008. Heart valve product sales grew 6 percent after adjusting for the impact of foreign currency.

Third Quarter Earnings Results

In the third quarter, the Company recorded pre-tax charges of $57 million, or $0.11 per diluted share, comprised primarily of employee termination costs related to continuing efforts to improve sales and sales support productivity as well as to streamline manufacturing operations. Including these charges, reported net earnings for the third quarter of 2009 were $167 million, or $0.48 per diluted share.

Excluding these charges, adjusted net earnings for the third quarter of 2009 were $204 million, or $0.59 per diluted share. A reconciliation of the Company’s non-GAAP adjusted net earnings per share to the Company’s GAAP net earnings per share is provided in the schedule at the end of the press release.

Fourth Quarter and Full-Year 2009 Sales and Earnings Guidance

During a conference call today, St. Jude Medical will provide its range for revenue expectations for the fourth quarter by product category.

The Company expects its consolidated earnings for the fourth quarter of 2009 to be in the range of $0.61 to $0.63 per diluted share and for full-year 2009 to be in the range of $2.41 to $2.43 per diluted share. This full-year guidance does not include the impact on earnings per share of the charges recorded in the third quarter of 2009. A further reconciliation of the Company’s annual guidance is provided in the schedule below.

Non-GAAP Financial Measures

The Company provides adjusted net earnings and adjusted net earnings per share because St. Jude Medical management believes that in order to properly understand the Company’s short-term and long-term financial trends, investors may wish to consider the impact of certain adjustments (such as in-process research and development charges, impairment charges, restructuring charges, litigation charges or litigation reserve adjustments and income tax adjustments). These adjustments result from facts and circumstances (such as business development activities, restructuring activities, asset impairment events or developments, settlements and other developments relating to litigation and resolution of audits by tax authorities) that vary in frequency and impact on the Company’s results of operations. St. Jude Medical management uses adjusted net earnings and adjusted net earnings per share to forecast and evaluate the operational performance of the Company as well as to compare results of current periods to prior periods on a consolidated basis.

Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Investors should consider non-GAAP measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.

Conference Call/Webcast

St. Jude Medical’s third quarter 2009 earnings call can be heard live today beginning at 7 a.m. CDT (also archived for 90 days) on the following Web site:Third Quarter 2009 Earnings Webcast

About St. Jude Medical

St. Jude Medical develops medical technology and services that focus on putting more control into the hands of those who treat cardiac, neurological and chronic pain patients worldwide. The company is dedicated to advancing the practice of medicine by reducing risk wherever possible and contributing to successful outcomes for every patient. Headquartered in St. Paul, Minn., St. Jude Medical employs more than 14,000 people worldwide and has four major focus areas that include: cardiac rhythm management, atrial fibrillation, cardiovascular and neuromodulation. For more information, please visit www.sjm.com.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include the expectations, plans and prospects for the Company, including potential clinical successes, anticipated regulatory approvals and future product launches, and projected revenues, margins, earnings and market shares. The statements made by the Company are based upon management’s current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include market conditions and other factors beyond the Company’s control and the risk factors and other cautionary statements described in the Company’s filings with the SEC, including those described in the Risk Factors and Cautionary Statements sections of the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended April 4, 2009 and July 4, 2009. The Company does not intend to update these statements and undertakes no duty to any person to provide any such update under any circumstance.

  Geographic Breakdown of Third Quarter 2009 Sales    

Reported %

Quarter Ended 10/3/09

Sales

Change vs.

(dollars in millions)      

3Q08

Total Sales   $ 1,160   7 % Total International Sales   $ 540 Total US Sales   $ 620     Worldwide Cardiac Rhythm Management   $ 690   2 % International Cardiac Rhythm Management   $ 306 U.S. Cardiac Rhythm Management   $ 384     Worldwide ICD   $ 389   2 % International ICD   $ 141 U.S. ICD   $ 248     Worldwide Pacemakers   $ 301   1 % International Pacemakers   $ 165 U.S. Pacemakers   $ 136     Worldwide Atrial Fibrillation   $ 156   16 % International Atrial Fibrillation   $ 85 U.S. Atrial Fibrillation   $ 71     Worldwide Cardiovascular   $ 230   11 % International Cardiovascular   $ 136 U.S. Cardiovascular   $ 94     Worldwide Neuromodulation   $ 84   31 % International Neuromodulation   $ 13 U.S. Neuromodulation   $ 71   Condensed Consolidated Balance Sheets (in thousands) (Unaudited)     October 3, 2009 January 3, 2009 Cash and cash equivalents $ 798,281 $ 136,443 Accounts receivable, net 1,194,700 1,101,258 Inventories 681,732 546,499 Other current assets 357,280 295,863 Property, plant & equipment, net 1,117,943 980,176 Goodwill 2,018,182 1,984,566 Other intangible assets, net 472,050 493,535 Other assets 229,573 184,164 Total assets $ 6,869,741 $ 5,722,504   Current portion of long-term debt $ 339,595 $ 75,518 Other current liabilities 893,955 953,006 Long-term debt 1,632,551 1,126,084 Deferred income taxes, net 136,046 112,231 Long-term other liabilities 279,586 219,759 Total equity 3,588,008 3,235,906 Total liabilities & equity $ 6,869,741 $ 5,722,504   St. Jude Medical, Inc. Condensed Consolidated Statements of Earnings (in thousands, except per share amounts) (Unaudited)                   Three Months Ended Nine Months Ended   October 3, 2009 September 27, 2008 October 3, 2009 September 27, 2008 Net sales $1,159,606 $1,084,136 $3,477,811 $3,230,634 Cost of sales Cost of sales before special charges 299,670 273,926 899,709 822,104 Special charges 6,061 0 6,061 0 Total cost of sales 305,731 273,926 905,770 822,104 Gross profit 853,875 810,210 2,572,041 2,408,530   Selling, general & administrative expense 427,227 401,325 1,276,071 1,184,702 Research & development expense 142,224 131,054 424,627 393,144 Special charges 42,394 0 42,394 0 Operating profit 242,030 277,831 828,949 830,684 Other income (expense), net (23,594) (18,105) (35,867) (46,552) Earnings before income taxes 218,436 259,726 793,082 784,132 Income tax expense 51,501 75,030 205,506 229,955 Net earnings $166,935 $184,696 (2) $587,576 $554,177 (5)   Adjusted net earnings (Non-GAAP) $203,989 (1) $189,598 (3) $624,630 (4) $572,289 (6)   Diluted net earnings per share $0.48 $0.53 $1.69 $1.58 Adjusted diluted net earnings per share (Non-GAAP) $0.59 (1) $0.54 (3) $1.79 (4) $1.64 (6)   Weighted average shares outstanding- diluted 344,298 349,728 348,242 349,984

(1)

 

Third quarter 2009 adjusted net earnings and adjusted diluted net earnings per share exclude the following after-tax items totaling $37,054 or $.11 per share:

-$31,867 charges, or $0.09 per share, primarily related to employee termination costs related to continuing efforts to improve sales and sales support productivity as well as to streamline manufacturing operations.

-$5,187 impairment charges, or $0.02 per share, related to a decline in the fair values of strategic cost investments that are not considered temporary. The associated pre-tax amount of $8,300 was recorded to other income (expense).

   

(2)

 

Third quarter 2008 net earnings were reduced by $8,247 due to the impact of retroactively adjusting the historical financial statements, as required by GAAP, to reflect the change in accounting related to the convertible debentures.

 

(3)

Third quarter 2008 adjusted net earnings and adjusted diluted net earnings per share include $4,902 of income tax benefit, or $0.01 per share, related to the benefit from the federal research and development tax credit extended in the fourth quarter of 2008 retroactive to the beginning of the year.

 

(4)

First nine months 2009 adjusted net earnings and adjusted diluted net earnings per share exclude the following after-tax items totaling $37,054 or $.10 per share:

-$31,867 charges, or $0.09 per share, primarily related to employee termination costs related to continuing efforts to improve sales and sales support productivity as well as to streamline manufacturing operations.

-$5,187 impairment charges, or $0.01 per share, related to a decline in the fair values of strategic cost investments that are not considered temporary. The associated pre-tax amount of $8,300 was recorded to other income (expense).

 

(5)

First nine months 2008 net earnings were reduced by $24,606 due to the impact of retroactively adjusting the historical financial statements, as required by GAAP, to reflect the change in accounting related to the convertible debentures.

 

(6)

First nine months 2008 adjusted net earnings and adjusted diluted net earnings per share include $18,112 of income tax benefit, or $0.06 per share, related to the benefit from the federal research and development tax credit extended in the fourth quarter of 2008 retroactive to the beginning of the year.

 

Full-Year 2009 Earnings Guidance Reconciliation   Estimated 2009 diluted net earnings per share $2.30 - $2.32 Estimated 2009 adjusted diluted net earnings per share (Non-GAAP) $2.41 - $2.43 (1)   (1)   The Company recorded charges in the third quarter of 2009 that reduced earnings by $0.11 per diluted share. The Company's above estimated 2009 adjusted diluted net earnings per share (Non-GAAP) of $2.41 - $2.43 excludes the impact of this charge