STJ ST. Jude Medical, Inc.

St. Jude Medical, Inc. (NYSE: STJ) today reported sales and net earnings for its second quarter ended July 4, 2015.

Second quarter 2015 highlights:

• Net sales increased by approximately 6 percent on a constant currency basis compared to the prior year quarter
• CardioMEMS™ HF System sales totaled approximately $20 million
• Atrial fibrillation revenue increased by approximately 18 percent on a constant currency basis due to global market share gains driven by the St. Jude Medical FlexAbilityTM and TactiCathTM Quartz Contact Force ablation catheters
• Worldwide neuromodulation revenue increased by approximately 17 percent on a constant currency basis, marking the fourth consecutive quarter of sales acceleration on a year over year basis

Second Quarter 2015 Sales

The company reported net sales of $1.410 billion in the second quarter of 2015, a 3 percent decrease compared to net sales of $1.448 billion in the second quarter of 2014. On a constant currency basis, net sales increased by approximately 6 percent compared to the second quarter of 2014.

Commenting on the company’s financial results, St. Jude Medical Chairman, President and Chief Executive Officer Daniel J. Starks said, “St. Jude Medical’s second quarter results reflect the continued success of our innovation-based growth strategy. We remain confident in our key programs that accelerated sales growth in the first half of 2015 and are raising our sales guidance in order to demonstrate our strong outlook for the remainder of the year."

Cardiac Rhythm Management (CRM)

Total CRM sales, which include implantable cardioverter defibrillator (ICD) and pacemaker products, were $670 million for the second quarter of 2015, a 9 percent decline compared to the prior year quarter. After adjusting for the impact of foreign currency, CRM sales decreased 1 percent compared to the prior year quarter.

Of that total, ICD product sales were $421 million in the second quarter, a 9 percent decline on a reported basis and decreased 2 percent on a constant currency basis compared to the prior year quarter.

Second quarter pacemaker sales were $249 million, an 8 percent decline compared to the prior year quarter. On a constant currency basis, pacemaker product sales increased 1 percent compared to the prior year quarter.

Atrial Fibrillation (AF)

AF product sales for the second quarter totaled $279 million, a 9 percent increase compared to the prior year quarter. On a constant currency basis, AF product sales increased 18 percent compared to the prior year quarter.

Cardiovascular

Total cardiovascular sales, which primarily include structural heart and vascular products, were $343 million for the second quarter of 2015, a 2 percent decline compared to the prior year quarter. On a constant currency basis, cardiovascular sales increased 7 percent compared to the prior year quarter.

Structural heart product sales for the second quarter of 2015 were $159 million, up 2 percent on a constant currency basis compared to the prior year quarter.

Sales of vascular products in the second quarter of 2015 were $184 million, a 12 percent increase on a constant currency basis compared to the prior year quarter.

Neuromodulation

St. Jude Medical sales of neuromodulation products were $118 million in the second quarter of 2015, a 10 percent increase on a reported basis and a 17 percent increase on a constant currency basis compared to the prior year quarter.

Second Quarter Earnings Results

In the second quarter the Company recognized net after-tax benefits of $20 million, or $0.07 per diluted share, primarily related to acquisition-related adjustments, discrete income tax benefits and ongoing restructuring activities. Including these items, reported net earnings for the second quarter of 2015 were $290 million or $1.02 per share, compared with reported net earnings for the second quarter of 2014 of $270 million or $0.93 per share. Reported results also include the $17 million after-tax impact, or $0.06 per diluted share, of amortization of intangible assets.

In accordance with GAAP, reported net earnings for the second quarter 2015 do not include any benefit from the federal research and development tax credit, which has yet to be extended for 2015. Including the benefit of this adjustment and excluding the second quarter net credits and intangible amortization expense, adjusted net earnings for the second quarter of 2015 were $293 million, or $1.03 per share. A reconciliation of the Company’s non-GAAP adjusted results to the Company’s GAAP reported results is provided in the schedules at the end of the press release.

Third Quarter and Full-Year 2015 Sales and Earnings Guidance

For the third quarter, St. Jude Medical expects revenue to grow in the range of 5 percent to 7 percent on a constant currency basis compared to the third quarter of 2014 with currency negatively impacting third quarter revenue by approximately $105 million to $115 million. For the full-year 2015, the company now expects total revenue to grow in the range of 4 percent to 6 percent on a constant currency basis with currency negatively impacting full-year 2015 revenue by approximately $385 million to $410 million. During its earnings conference call today, St. Jude Medical will provide an update to its range for revenue expectations for the full-year 2015 by product category.

The company expects its consolidated adjusted net earnings for the third quarter of 2015 to be in the range of $0.96 to $0.98 per share and for full-year 2015 consolidated adjusted net earnings to be in the range of $3.96 to $4.00. A further reconciliation of the company’s quarterly and annual guidance is provided in the schedules at the end of the press release.

Conference Call / Webcast

St. Jude Medical’s second quarter earnings call can be heard live via webcast today beginning at 7 a.m. CT via the St. Jude Medical Investor Relations website (investors.sjm.com). Approximately one hour following the call (and archived for 90 days), a replay will be available on the Investor Events and Presentations webpage in the Investor Relations section of the St. Jude Medical website.

St. Jude Medical will also be tweeting live during the call on our Investor Relations Twitter account, @StJudeMedicalIR.

About St. Jude Medical

St. Jude Medical is a global medical device manufacturer dedicated to transforming the treatment of some of the world’s most expensive epidemic diseases. The company does this by developing cost-effective medical technologies that save and improve lives of patients around the world. Headquartered in St. Paul, Minn., St. Jude Medical has four major clinical focus areas that include cardiac rhythm management, atrial fibrillation, cardiovascular and neuromodulation. For more information, please visit sjm.com or follow us on Twitter @StJudeMedicalIR.

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 3, 2015 and Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2015. 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 2Q15 Sales and Reconciliation to Constant Currency Sales Growth (in millions)               (unaudited) Constant Constant 2Q15 Sales 2Q14 Sales Reported % Currency %

Reported

Currency

Foreign Change vs. Change vs.

$ Change

$ Change

Currency             2Q14   2Q14  

vs. 2Q14

 

vs. 2Q14

  Impact Total Sales   $1,410   $1,448   -3%   6%   -$38   $80   -$118 Total International Sales   $697   $779   -10%   5% Total U.S. Sales   $713   $669   7%                 Worldwide Cardiac Rhythm Management   $670   $733   -9%   -1%   -$63   -$10   -$53 International Cardiac Rhythm Management   $300   $351   -14%   1% U.S. Cardiac Rhythm Management   $370   $382   -3%                 Worldwide ICD   $421   $462   -9%   -2%   -$41   -$11   -$30 International ICD   $156   $187   -17%   -1% U.S. ICD   $265   $275   -4%                 Worldwide Pacemakers   $249   $271   -8%   1%   -$22   $1   -$23 International Pacemakers   $144   $164   -12%   2% U.S. Pacemakers   $105   $107   -2%                 Worldwide Atrial Fibrillation   $279   $257   9%   18%   $22   $47   -$25 International Atrial Fibrillation   $159   $159   0%   15% U.S. Atrial Fibrillation   $120   $98   22%                 Worldwide Cardiovascular   $343   $351   -2%   7%   -$8   $25   -$33 International Cardiovascular   $202   $233   -13%   1% U.S. Cardiovascular   $141   $118   19%                 Worldwide Structural Heart   $159   $171   -7%   2%   -$12   $4   -$16 International Structural Heart   $102   $116   -12%   1% U.S. Structural Heart   $57   $55   4%                 Worldwide Vascular   $184   $180   2%   12%   $4   $21   -$17 International Vascular   $100   $117   -15%   0% U.S. Vascular   $84   $63   32%                 Worldwide Neuromodulation   $118   $107   10%   17%   $11   $18   -$7 International Neuromodulation   $36   $36   1%   21% U.S. Neuromodulation   $82   $71   15%                   Note: Percentage changes are based on actual, non-rounded amounts and may not recalculate precisely.     St. Jude Medical, Inc. Condensed Consolidated Balance Sheets (in millions) (Unaudited)         July 4, 2015 January 3, 2015 Cash and cash equivalents $910 $1,442 Accounts receivable, net 1,240 1,215 Inventories 817 784 Other current assets 459 473 Property, plant & equipment, net 1,298 1,343 Goodwill 3,520 3,532 Other intangible assets, net 801 851 Other assets 589 567 Total assets $9,634 $10,207   Current debt obligations $1,979 $1,593 Other current liabilities 1,035 1,073 Long-term debt 1,762 2,273 Long-term other liabilities 1,017 1,024 Total equity 3,841 4,244 Total liabilities & equity $9,634 $10,207     St. Jude Medical, Inc. Condensed Consolidated Statements of Earnings (in millions, except per share amounts) (Unaudited)                   Three Months Ended Six Months Ended     July 4, 2015 June 28, 2014 July 4, 2015 June 28, 2014 Net sales $1,410 $1,448 $2,755 $2,811 Cost of sales: Cost of sales before special charges 419 407 812 789 Special charges 5 26 7 27 Total cost of sales 424 433 819 816 Gross profit 986 1,015 1,936 1,995   Selling, general & administrative expense 447 502 877 946 Research & development expense 171 178 338 348 Amortization of intangible assets 24 21 48 42 Special charges 30 25 34 58 Operating profit 314 289 639 601 Other expense, net 20 21 37 41 Earnings before noncontrolling interest and income taxes 294 268 602 560 Income taxes 12 22 64 75 Net earnings before noncontrolling interest 282 246 538 485 Net loss attributable to noncontrolling interest (8) (24) (14) (34) Net earnings attributable to St. Jude Medical, Inc. $290 $270 $552 $519     Diluted net earnings per share attributable to St. Jude Medical, Inc. $1.02 $0.93 $1.93 $1.80 Adjusted diluted net earnings per share attributable to St. Jude Medical, Inc. (Non-GAAP) (1) $1.03 $1.07 $1.95 $2.07   Cash dividends declared per share $0.29 $0.27 $0.58 $0.54   Weighted average shares outstanding- diluted 285.5 288.9 286.3 289.1   (1) See accompanying reconciliation tables.     Non-GAAP Financial Measures Reconciliations (Unaudited)                 Three Months Ended July 4, 2015

 

 

 

 

Earnings before Net earnings

Net loss

 

Diluted net

noncontrolling before

attributable to

Net earnings

earnings per share

interest and noncontrolling noncontrolling

attributable to St.

attributable to St.

Diluted EPS

(in millions, except per share amounts) income taxes   Income taxes   Effective tax rate   interest   interest  

Jude Medical, Inc.

 

Jude Medical, Inc.

 

growth rate

  As reported (GAAP) $ 294 $ 12 4.1 % $ 282 $ (8 ) $ 290 $ 1.02 10 %   Restructuring activities 36 11 25 - 25 0.09 Acquisition-related costs (10 ) 1 (11 ) 4 (15 ) (0.05 ) Product field action costs and litigation costs (1 ) - (1 ) - (1 ) 0.00 Amortization of intangible assets 24 7 17 - 17 0.06 Discrete income tax benefits - 29 (29 ) - (29 ) (0.10 ) R&D credit - (6 ) 6 - 6 0.02                               As adjusted (Non-GAAP) $ 343     $ 54       15.7 %   $ 289     $ (4 )   $ 293     $ 1.03     -4 %   Unfavorable foreign currency impact vs. 2014 0.18       Constant currency as adjusted (non-GAAP) $ 1.21     13 %    

 

Product field

Restructuring

Acquisition-

action costs and

activities  

related costs

  litigation costs   Total   Special charges (cost of sales) $ 9 $ - $ (4 ) $ 5 Selling, general & administrative expense - (11 ) - (11 ) Research & development expense - 1 - 1 Special charges (operating expenses)   27       -       3       30   $ 36     $ (10 )   $ (1 )   $ 25       Three Months Ended June 28, 2014     Earnings before Net earnings Net loss

Diluted net

noncontrolling before attributable to Net earnings

earnings per share

interest and noncontrolling noncontrolling attributable to St. attributable to St. (in millions, except per share amounts) income taxes   Income taxes   Effective tax rate   interest   interest   Jude Medical, Inc.   Jude Medical, Inc.   As reported (GAAP) $ 268 $ 22 8.2 % $ 246 $ (24 ) $ 270 $ 0.93   Restructuring activities 60 18 42 - 42 0.15 Acquisition-related costs 31 6 25 16 9 0.03 Product field action costs and litigation costs 18 7 11 - 11 0.04 Legal settlements (27 ) (10 ) (17 ) - (17 ) (0.06 ) Amortization of intangible assets 21 8 13 - 13 0.04 Discrete income tax benefits - 24 (24 ) - (24 ) (0.08 ) R&D credit - (4 ) 4 - 4 0.01                           As adjusted (Non-GAAP) $ 371     $ 71       19.1 %   $ 300     $ (8 )   $ 308     $ 1.07      

 

Product field

Restructuring

Acquisition-

action costs and

 

activities  

related costs

  litigation costs  

Legal settlements

  Total   Special charges (cost of sales) $ 26 $ - $ - $ - $ 26 Selling, general & administrative expense - 31 - - 31 Special charges (operating expenses)   34       -       18       (27 )     25   $ 60     $ 31     $ 18     $ (27 )   $ 82       Six Months Ended July 4, 2015     Earnings before Net earnings Net loss

Diluted net

noncontrolling before attributable to Net earnings

earnings per share

interest and noncontrolling noncontrolling attributable to St. attributable to St.

Diluted EPS

(in millions, except per share amounts) income taxes   Income taxes   Effective tax rate   interest   interest   Jude Medical, Inc.   Jude Medical, Inc.  

growth rate

  As reported (GAAP) $ 602 $ 64 10.6 % $ 538 $ (14 ) $ 552 $ 1.93 7 %   Restructuring activities 49 14 35 - 35 0.12 Acquisition-related costs (32 ) 2 (34 ) 4 (38 ) (0.13 ) Product field action costs and litigation costs 2 1 1 - 1 0.00 Legal settlements (10 ) (4 ) (6 ) - (6 ) (0.02 ) Amortization of intangible assets 48 15 33 - 33 0.12 Discrete income tax benefits - 29 (29 ) - (29 ) (0.10 ) R&D credit - (11 ) 11 - 11 0.04                               As adjusted (Non-GAAP) $ 659     $ 110       16.7 %   $ 549     $ (10 )   $ 559     $ 1.95     -6 %   Unfavorable foreign currency impact vs. 2014 0.33       Constant currency as adjusted (non-GAAP) $ 2.28     10 %    

 

Product field

Restructuring

Acquisition-

action costs and

activities  

related costs

  litigation costs   Legal settlements   Total   Special charges (cost of sales) $ 13 $ - $ (6 ) $ - $ 7 Selling, general & administrative expense - (33 ) - - (33 ) Research & development expense - 1 - - 1 Special charges (operating expenses)   36       -       8       (10 )     34   $ 49     $ (32 )   $ 2     $ (10 )   $ 9       Six Months Ended June 28, 2014 Earnings before Net earnings Net loss

Diluted net

noncontrolling before attributable to Net earnings

earnings per share

interest and noncontrolling noncontrolling attributable to St. attributable to St. (in millions, except per share amounts) income taxes   Income taxes   Effective tax rate   interest   interest   Jude Medical, Inc.   Jude Medical, Inc.   As reported (GAAP) $ 560 $ 75 13.4 % $ 485 $ (34 ) $ 519 $ 1.80   Restructuring activities 94 29 65 - 65 0.22 Acquisition-related costs 33 6 27 16 11 0.04 Product field action costs and litigation costs 18 7 11 - 11 0.04 Legal settlements (27 ) (10 ) (17 ) - (17 ) (0.06 ) Amortization of intangible assets 42 16 26 - 26 0.09 Discrete income tax benefits - 24 (24 ) - (24 ) (0.08 ) R&D credit - (8 ) 8 - 8 0.03                           As adjusted (Non-GAAP) $ 720     $ 139       19.3 %   $ 581     $ (18 )   $ 599     $ 2.07      

 

Product field

Restructuring

Acquisition-

action costs and

activities  

related costs

  litigation costs   Legal settlements   Total   Special charges (cost of sales) $ 27 $ - $ - $ - $ 27 Selling, general & administrative expense - 33 - - 33 Special charges (operating expenses)   67       -       18       (27 )     58   $ 94     $ 33     $ 18     $ (27 )   $ 118       The sum of the components may not equal the total due to rounding and quantities of shares outstanding in different periods.   Tax rates vary and are applied based on the item's nature and tax jurisdiction where it is incurred.     2015 Earnings Guidance Reconciliation (Unaudited)         Third Quarter Full Year   Estimated 2015 diluted net earnings per share attributable to St. Jude Medical,Inc. $0.84 - $0.86 $3.70 - $3.74 Estimated restructuring activities 0.02 0.16 Estimated acquisition-related costs 0.02 (0.09) Legal settlements - (0.02) Estimated amortization of intangible assets 0.06 0.23 Discrete income tax benefits - (0.10) Estimated R&D credit 0.02 0.08 Estimated 2015 adjusted diluted net earnings per share attributable to St. Jude Medical, Inc. (Non-GAAP) $0.96 - $0.98 $3.96 - $4.00   The sum of the components may not equal the total due to rounding and quantities of shares outstanding in different periods.     2015 Sales Guidance Reconciliation (in millions) (Unaudited)         Third Quarter Full Year   2014 total sales $1,372 $5,622 Estimated 2015 sales $1,325 - $1,365 $5,435 - $5,575 Estimated 2015 % change vs 2014 (3%) - (1%) (3%) - (1%)   Estimated unfavorable foreign currency impact vs 2014 $105 - $115 $385 - $410 Estimated constant currency 2015 total sales (Non-GAAP) $1,440 - $1,470 $5,845 - $5,960 Estimated 2015 constant currency % change vs 2014 (Non-GAAP) 5% - 7% 4% - 6%  

Non-GAAP Financial Measures

The company provides the following non-GAAP financial measures 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 discussed below. St. Jude Medical management uses these non-GAAP financial measures 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.

• Adjusted earnings before noncontrolling interest and income taxes
• Adjusted income taxes and adjusted effective tax rate
• Adjusted net earnings before noncontrolling interest
• Adjusted net loss attributable to noncontrolling interest
• Adjusted net earnings attributable to St. Jude Medical, Inc.
• Adjusted diluted net earnings per share attributable to St. Jude Medical, Inc. and adjusted diluted EPS growth rate
• Adjusted constant currency diluted net earnings per share attributable to St. Jude Medical, Inc. and adjusted constant currency diluted EPS growth rate

The adjustments made to GAAP financial measures result from facts and circumstances that vary in frequency and impact on the Company’s results of operations. The following is an explanation of each of the adjustments that management excludes in calculating its non-GAAP measures.

Restructuring activities – These amounts represent severance costs and other termination benefits, inventory write-offs primarily associated with discontinued product lines, fixed asset write-offs related to assets no longer expected to be utilized and other restructuring costs.

Acquisition-related costs – These amounts consist of contingent consideration fair value adjustments, acquired inventory step-up amortization, other transaction costs and integration costs.

Product field action costs and litigation costs – These amounts primarily relate to inventory write-off and disposal costs, additional warranty and patient monitoring costs, and estimated legal costs for outstanding legal matters associated with product field actions.

Legal settlements – These amounts consist of losses that are probable and reasonably estimable, gains related to favorable resolutions of litigation matters and probable insurance recoveries.

Amortization of intangible assets – These amounts represent the non-cash amortization expenses we recognized for definite-lived intangible assets.

Discrete income tax items – These amounts represent tax effects related to significant unusual or infrequent items not attributable to current-year ordinary income, such as settlement of tax positions and discrete tax adjustments to uncertain tax positions.

R&D credit – These amounts represent the impact of the federal research and development tax credit to present comparative periods assuming that the tax credit had been enacted in all periods presented.

Foreign currency impact – These amounts represent the impact to net sales and adjusted diluted net earnings per share attributable to St. Jude Medical, Inc. after translating net sales and the consolidated statement of earnings at comparable prior period foreign currency exchange rates.

The company also provides constant currency sales growth and constant currency adjusted EPS growth 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 foreign currency translation on net sales and adjusted EPS. St. Jude Medical management uses constant currency sales growth and constant currency adjusted EPS growth to forecast and evaluate the operational performance of the company as well as to compare sales and adjusted EPS of current periods to prior periods.

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.

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St. Jude Medical, Inc.Media Contact:Kate Stoltenberg, 651-756-3388kstoltenberg@sjm.comorInvestor Contact:J.C. Weigelt, 651-756-4347jweigelt@sjm.com