STJ ST. Jude Medical, Inc.

St. Jude Medical, Inc. (NYSE: STJ) today reported sales and net earnings for the second quarter ended July 2, 2011.

Second Quarter Sales

The Company reported net sales of $1.447 billion in the second quarter of 2011, an increase of 10 percent compared with the $1.313 billion in the second quarter of 2010. Revenue for the second quarter increased 4 percent after adjusting for the impact of foreign currency. Foreign currency translation comparisons increased second quarter sales by approximately $75 million.

Commenting on the second quarter and the Company’s growth program, St. Jude Medical Chairman, President and Chief Executive Officer Daniel J. Starks said, “St. Jude Medical delivered record sales during the second quarter. We are making good progress implementing our new growth drivers and diversifying our growth portfolio. Although sales in the U.S. were down 2% due primarily to weakness in the U.S. cardiac rhythm management market, international sales increased 23% and now represent the majority of our business.”

Cardiac Rhythm Management (CRM)

Total CRM sales, which include ICD and pacemaker products, were $793 million for the second quarter of 2011, a 1 percent increase compared with the second quarter of 2010. Total CRM sales for the second quarter grew 3 percent after adjusting for the one-time benefit of a competitor’s suspension of sales of ICD products in the United States during the prior year.

Of that total, ICD product sales were $477 million in the second quarter, a 1 percent increase compared with the second quarter of 2010. Adjusting for the one-time benefit we experienced in the U.S. in the prior year, ICD revenue grew 5 percent this quarter.

Second quarter pacemaker sales were $316 million, essentially equal to the second quarter of 2010.

Atrial Fibrillation (AF)

AF product sales for the second quarter totaled $208 million, an 18 percent increase over the second quarter of 2010.

Neuromodulation

St. Jude Medical sales of neuromodulation products were $104 million in the second quarter of 2011, up 9 percent from the comparable quarter of 2010.

Cardiovascular

Total cardiovascular sales, which primarily include vascular and structural heart products, were $342 million for the second quarter of 2011, a 35 percent increase over the second quarter of 2010. This division now includes sales from AGA Medical, Inc., which St. Jude Medical acquired in November 2010.

Sales of vascular products during the second quarter of 2011 were $189 million, up 14 percent from the comparable quarter of 2010.

Structural heart product sales for the second quarter of 2011 were $153 million, a 74 percent increase over the second quarter of 2010, with the addition of AGA Medical products to the business.

Second Quarter Earnings Results

In the second quarter of 2011 the Company recorded after-tax charges of $10 million, or $0.03 per share, related to the remaining increase in cost of goods sold that resulted from the step up in inventory values required under acquisition accounting associated with the AGA Medical acquisition.

In addition, the Company recognized $32 million, or $0.10 per share, in other after-tax charges, primarily related to restructuring actions initiated during the second quarter to realign certain activities within its CRM business. A key component of these restructuring activities relates to the Company’s decision to transition CRM manufacturing out of Sweden to more cost-advantaged locations.

Including these items, reported net earnings for the second quarter of 2011 was $241 million, or $0.72 per share. This compares to reported net earnings for the second quarter of 2010 of $254 million, or $0.77 per share. Excluding these items, adjusted net earnings for the second quarter of 2011 were $283 million, or $0.85 per 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.

Third Quarter and Full Year 2011 Sales and Earnings Guidance

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

The Company expects its consolidated adjusted net earnings for the third quarter of 2011 to be in the range of $0.74 to $0.76 per diluted share and for the full-year to be in the range of $3.25 to $3.30. A further reconciliation of the Company’s quarterly and 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, acquisition related 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, acquisitions, restructuring activities, asset impairment events or developments, settlements and other developments relating to litigation) 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 second quarter 2011 earnings call can be heard live today beginning at 7 a.m. CDT (also archived for 90 days) on the Investor Relations section of our website sjm.com.

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. St. Jude Medical is headquartered in St. Paul, Minn. and has four major focus areas that include: cardiac rhythm management, atrial fibrillation, cardiovascular and neuromodulation. For more information, please visit 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 Annual Report on Form 10-K for the fiscal year ended January 1, 2011 and Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2011. The Company does not intend to update these statements and undertakes no duty to any person to provide any such update under any circumstance.

Summary of Second Quarter 2011 Sales

   

 

Reported %

Quarter Ended 07/02/11 Sales

Growth vs.

(dollars in millions)      

2Q10

Total Sales   $1,447   10% Total International Sales   $769 Total US Sales   $678     Worldwide Cardiac Rhythm Management   $793   1% International Cardiac Rhythm Management   $392 U.S. Cardiac Rhythm Management   $401     Worldwide ICD   $477   1% International ICD   $205 U.S. ICD   $272     Worldwide Pacemakers   $316   0% International Pacemakers   $187 U.S. Pacemakers   $129     Worldwide Atrial Fibrillation   $208   18% International Atrial Fibrillation   $124 U.S. Atrial Fibrillation   $84     Worldwide Cardiovascular   $342   35% International Cardiovascular   $226 U.S. Cardiovascular   $116     Worldwide Neuromodulation   $104   9% International Neuromodulation   $27 U.S. Neuromodulation $77   St. Jude Medical, Inc. Condensed Consolidated Balance Sheets (in thousands) (Unaudited)       July 2, 2011 January 1, 2011 Cash and cash equivalents $832,817 $500,336 Accounts receivable, net 1,443,614 1,331,210 Inventories 699,163 667,545 Other current assets 382,922 413,057 Property, plant & equipment, net 1,384,516 1,323,931 Goodwill 2,979,493 2,955,602 Other intangible assets, net 945,393 987,060 Other assets 427,479 387,707 Total assets $9,095,397 $8,566,448   Current debt obligations $80,465 $79,637 Other current liabilities 925,857 937,613 Long-term debt 2,486,016 2,431,966 Deferred income taxes, net 303,313 310,503 Long-term other liabilities 464,064 435,058 Total equity 4,835,682 4,371,671 Total liabilities & equity $9,095,397 $8,566,448   St. Jude Medical, Inc. Condensed Consolidated Statements of Earnings (in thousands, except per share amounts) (Unaudited)                 Three Months Ended Six Months Ended   July 2, 2011 July 3, 2010 July 2, 2011 July 3, 2010 Net sales $1,446,751 $1,312,769 $2,822,264 $2,574,465 Cost of sales Cost of sales before special charges 383,877 345,302 748,319 666,471 Special charges 11,046 0 11,046 0 Total cost of sales 394,923 345,302 759,365 666,471 Gross profit 1,051,828 967,467 2,062,899 1,907,994   Selling, general & administrative expense 513,841 447,610 1,027,161 890,900 Research & development expense 176,334 155,104 352,067 306,334 Purchased in-process R & D charges 4,400 0 4,400 0 Special charges 32,169 0 32,169 0 Operating profit 325,084 364,753 647,102 710,760 Other income (expense), net (25,013 ) (20,230 ) (51,465 ) (40,546 ) Earnings before income taxes 300,071 344,523 595,637 670,214 Income tax expense 59,177 90,485 121,315 177,607 Net earnings $240,894 $254,038 $474,322 $492,607     Adjusted net earnings (Non-GAAP) $282,600 (1) $261,092 (2) $544,140 (3) $506,012 (4)   Diluted net earnings per share $0.72 $0.77 $1.43 $1.50 Adjusted diluted net earnings per share (Non-GAAP) $0.85 (1) $0.79 (2) $1.65 (3) $1.54 (4)   Cash dividends declared per share $0.21 $0.42   Weighted average shares outstanding- diluted 332,635 329,313 330,757 328,684    

(1) Second quarter 2011 adjusted net earnings and adjusted diluted net earnings per share exclude the following after-tax chargestotaling $41,706 or $0.13 per share:

- $9,987 charges, or $0.03 per share, related to AGA Medical Holdings, Inc. acquired inventory step up amortization expense.The associated pre-tax amount of $14,622 was recorded to Cost of sales.

- $28,969 charges, or $0.09 per share, primarily related to restructuring actions initiated during the second quarter torealign certain activities in our CRM business. The associated pre-tax amount of $43,215 was recorded as a SpecialCharge to Cost of sales ($11,046) and Special charges ($32,169).

- $2,750 Purchased in-process R&D charges, or $0.01 per share, associated with the Company's acquisition of certainpre-development technology assets.

 

(2) Second quarter 2010 adjusted net earnings and adjusted diluted net earnings per share include $7,054 of income tax benefit, or$0.02 per share, related to the benefit from the federal research and development tax credit extended in the fourth quarter of 2010retroactive to the beginning of the year.

 

(3) First six months 2011 adjusted net earnings and adjusted diluted net earnings per share exclude the following after-tax chargestotaling $69,818 or $0.22 per share:

- $19,250 charges, or $0.06 per share, related to AGA Medical Holdings, Inc. acquired inventory step up amortization expense. Theassociated pre-tax amount of $29,442 was recorded to Cost of sales.

- $28,969 charges, or $0.09 per share, primarily related to restructuring actions initiated during the second quarter to realigncertain activities in our CRM business. The associated pre-tax amount of $43,215 was recorded as a Special Charge to Costof sales ($11,046) and Special charges ($32,169).

- $18,849 charges, or $0.06 per share, primarily related to post acquisition expenses for AGA Medical Holdings, Inc. whichprincipally include contract termination costs and other integration costs in international locations. The associated pre-taxamount of $24,922 was recorded to SG&A expense.

- $2,750 Purchased in-process R&D charges, or $0.01 per share, associated with the Company's acquisition of certain pre-developmenttechnology assets.

 

(4) First six months 2010 adjusted net earnings and adjusted diluted net earnings per share include $13,405 of income tax benefit, or$0.04 per share, related to the benefit from the federal research and development tax credit extended in the fourth quarter of 2010retroactive to the beginning of the year.

 

2011 Earnings Guidance Reconciliation     Third Quarter 2011 Full Year 2011   Estimated 2011 diluted net earnings per share $ 0.74 - $ 0.76 $ 3.03 - $ 3.08 Estimated 2011 adjusted diluted net earnings per share (Non-GAAP) $ 0.74 - $ 0.76 $ 3.25 - $ 3.30 (5)  

(5) The Company's above estimated 2011 adjusted diluted net earnings per share (Non-GAAP)excludes the impact of after-tax charges recognized during the first six months of 2011(detailed in footnote 3 above).