Medtronic, Inc. : Medtronic Reports Fourth Quarter Earnings

Medtronic, Inc. (NYSE:MDT) today announced financial results for its fourth quarter and fiscal year ended April 27, 2012.

The company reported worldwide fourth quarter revenue of $4.297 billion, compared to the $4.167 billion reported in the fourth quarter of fiscal year 2011, an increase of 4 percent on a constant currency basis after adjusting for a $42 million negative foreign currency impact or 3 percent as reported. As reported, fourth quarter net earnings were $991 million, or $0.94 per diluted share, an increase of 28 percent and 31 percent, respectively, over the same period in the prior year. As detailed in the attached table, fourth quarter net earnings and diluted earnings per share on a non-GAAP basis were $1.036 billion and $0.99, an increase of 7 percent and 10 percent, respectively, over the same period in the prior year.

The company reported fiscal year 2012 revenue of $16.184 billion, an increase of 3 percent on a constant currency basis after adjusting for a $273 million positive foreign currency impact or 4 percent as reported. As reported, fiscal year 2012 net earnings were $3.617 billion or $3.41 per diluted share, an increase of 17 percent and 19 percent, respectively. As detailed in the attached table, fiscal year 2012 non-GAAP net earnings and diluted earnings per share were $3.666 billion and $3.46, an increase of 1 percent and 3 percent, respectively.

Fiscal year 2012 international revenue of $7.356 billion grew 7 percent on a constant currency basis or 11 percent as reported. Fourth quarter international revenue of $1.998 billion increased 7 percent on a constant currency basis or 5 percent as reported. International sales accounted for 46 percent of Medtronic's worldwide revenue in the quarter. Emerging market revenue of $463 million increased 20 percent on a constant currency basis or 19 percent as reported and now represents 11 percent of company revenue.

"I am pleased with our improved revenue growth this quarter in a dynamic healthcare environment," said Omar Ishrak, Medtronic chairman and chief executive officer. "Our growth was broad-based across our businesses and geographies, including strong U.S. launches of the Resolute™ Integrity^® drug-eluting stent and RestoreSensor^® spinal cord stimulator and strong growth in emerging markets. As we continue to focus on innovation, globalization, and execution, I see many opportunities for improved growth."

Cardiac and Vascular Group

The Cardiac and Vascular Group at Medtronic includes the Cardiac Rhythm Disease Management (CRDM) and CardioVascular businesses. The Group had worldwide sales in the quarter of $2.253 billion, representing an increase of 4 percent on a constant currency basis or 3 percent as reported. Cardiac and Vascular Group international sales of $1.288 billion increased 5 percent on a constant currency basis or 3 percent as reported. Group revenue performance was driven by Coronary, Transcatheter Valves, Endovascular, AF Solutions, Renal Denervation, and Peripheral, partially offset by small declines in Pacing and Implantable Cardioverter Defibrillators (ICDs).

CRDM revenue of $1.295 billion was flat on a constant currency basis or down 2 percent as reported. Fourth quarter revenue from ICDs was $744 million, down 1 percent on a constant currency basis, while pacing revenue was $492 million, a decrease of 2 percent on a constant currency basis. Continued growth of the AF Solutions business offset weaker ICD and Pacing sales.

CardioVascular revenue of $958 million grew 10 percent on a constant currency basis or 9 percent as reported. The Coronary business grew worldwide revenue 12 percent on a constant currency basis and U.S. revenue 24 percent on the impressive launch of the Resolute™ Integrity^® drug-eluting stent, resulting in a doubling of U.S. drug-eluting stent market share. The Structural Heart and Endovascular & Peripheral businesses grew worldwide revenue 7 percent and 10 percent, respectively, on a constant currency basis.

Restorative Therapies Group

The Restorative Therapies Group at Medtronic includes the Spine, Neuromodulation, Diabetes, and Surgical Technologies businesses. The Group had worldwide sales in the quarter of $2.044 billion, representing an increase of 4 percent as reported and on a constant currency basis. Group revenue was driven by solid performances in Surgical Technologies, Neuromodulation, and Diabetes, partially offset by declines in U.S. Spine. Restorative Therapies Group international sales of $710 million increased 11 percent on a constant currency basis or 9 percent as reported.

Spine revenue of $818 million declined 6 percent on a constant currency basis or declined 7 percent as reported. International sales for the Spine business increased 8 percent on a constant currency basis. Core Spine revenue of $629 million, which includes core metal constructs, interspinous process decompression devices, and balloon kyphoplasty products, declined 3 percent on a constant currency basis. Biologics revenue of $189 million declined 16 percent on a constant currency basis, driven by declines in U.S. sales of INFUSE^®, partially offset by revenue growth in Other Biologics.

Neuromodulation revenue of $463 million increased 8 percent on a constant currency basis or 7 percent as reported. Growth was driven by an increase in new implants in pain stimulation, deep brain stimulation (DBS), and stimulation for incontinence indications. Growth in pain stimulation was driven by the successful U.S. and Japan launches of the RestoreSensor^® spinal cord stimulator with its proprietary AdaptiveStim^® technology. Sales of DBS products were driven by an increased focus on neurologist referrals. In Uro/Gastro, sales of InterStim^® Therapy for both urinary and bowel indications drove growth.

Diabetes revenue of $392 million grew 8 percent on a constant currency basis or 7 percent as reported. Growth in the quarter was driven by strong sales of continuous glucose monitoring (CGM) products and consumables. The Enlite™ CGM sensor had solid growth in Europe, and the company continues to make progress on its IDE study for U.S. approval of this next generation sensor.

Surgical Technologies revenue of $371 million grew 25 percent on a constant currency basis or 24 percent as reported. Organic revenue growth accelerated to 14 percent, after adjusting for $34 million of revenue from the Advanced Energy business, consisting of the company's Salient Surgical Technologies and PEAK Surgical acquisitions. Revenue growth was driven by strong sales of capital equipment in the ENT and Navigation businesses.

Fiscal Year 2013 Revenue Outlook and Earnings per Share Guidance

The company today provided its initial revenue outlook and diluted earnings per share (EPS) guidance for fiscal year 2013.

The company expects fiscal year 2013 revenue growth in the range of 2 to 4 percent on a constant currency basis. The company expects fiscal year 2013 diluted EPS in the range of $3.62 to $3.70, which implies EPS growth of 5 to 7 percent.

Earnings per share 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.

In closing, Ishrak said, "We are beginning to gain momentum worldwide and are optimistic about our ability to improve long-term growth as we expand globally and identify new opportunities to deliver economic value to the changing health care system."

Webcast Information

Medtronic will host a webcast today, May 22, 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 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., is the world's leading medical technology company -- alleviating pain, restoring health, and extending life for people with chronic disease.

This press release contains forward-looking statements related to product growth drivers, strategies for growth, regulatory developments, 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 fourth quarter of fiscal year 2011, and references to annual figures increasing or decreasing are in comparison to fiscal year 2011.

(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 revenue 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.

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

(a) The $64 million ($0.06 per share) after-tax ($87 million pre-tax) restructuring charge is the net impact of an $88 million after-tax ($118 million pre-tax) charge related to the fiscal year 2012 initiative, partially offset by a $24 million after-tax ($31 million pre-tax) reversal of excess restructuring reserves related to the fiscal year 2011 initiative. The fiscal year 2012 initiative restructuring charge consisted of employee termination costs, asset write-downs, contract termination fees, and other related costs. The fiscal year 2012 initiative was designed to hold general, administrative and indirect distribution costs flat in certain organizations while prioritizing investment in research and development, sales, and marketing in geographies, businesses, and products where faster growth is anticipated, such as emerging markets and new technologies. The fiscal year 2011 initiative reversal of excess restructuring reserves was due to certain employees identified for elimination finding positions elsewhere within the Company, favorable severance negotiations outside the U.S., and more favorable than expected outcomes in the sub-leasing of previously vacated properties. In addition to disclosing restructuring charges 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 these restructuring charges, net. 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, net 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 $57 million ($0.05 per share) after-tax ($90 million pre-tax) certain litigation charges, net relates to the agreement in principle to settle the federal securities class action initiated by the Minneapolis Firefighters' Relief Association in December 2008. During the fourth quarter of fiscal year 2012, Medtronic reached a settlement agreement in principle to resolve all of these class claims for $85 million and incurred $5 million in additional litigation fees as a result of the agreement. In addition to disclosing certain litigation charges, net 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 or similar to measures presented by other companies.

(c) The $13 million ($0.01 per share) after-tax ($13 million pre-tax) acquisition-related items include charges related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009. In addition to disclosing 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 these 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 these 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.

(d) The Financial Accounting Standards Board (FASB) authoritative guidance for convertible debt accounting has resulted in an after-tax impact to net earnings of $14 million ($0.01 per share) and $25 million ($0.02 per share) for the three months ended April 27, 2012 and April 29, 2011, respectively. The pre-tax impact to interest expense, net was $22 million and $40 million for the three months ended April 27, 2012 and April 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 or similar to measures presented by other companies.

(e) The $103 million ($0.10 per share) after-tax ($200 million pre-tax) net gain from Physio-Control divestiture-related items includes a $204 million after-tax ($218 million pre-tax) gain recognized on the sale of Physio-Control on January 30, 2012, partially offset by the reversal of an $84 million deferred income tax benefit recorded in the third quarter of fiscal year 2012 and $17 million of after-tax ($18 million pre-tax) transaction costs. The deferred income tax benefit was recorded in accordance with U.S. GAAP as the Company was required to establish a deferred tax asset on the difference between its tax and book basis in the shares of Physio-Control, up to the expected amount of gain, at the point in time the Company classified Physio-Control as held for sale in the third quarter of fiscal year 2012. In the fourth quarter of fiscal year 2012 when the Company recorded the Physio-Control disposition, the Company wrote-off the deferred tax asset with a corresponding deferred income tax expense. In addition to disclosing Physio-Control divestiture-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 Physio-Control divestiture-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 Physio-Control divestiture-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.

(f) The $198 million ($0.18 per share) after-tax ($272 million pre-tax) restructuring charge, net consisted of employee termination costs, asset write-downs, contract termination fees, and other related costs. Included in the employee termination costs were expenses associated with compensation and early retirement benefits provided to certain employees. As part of the asset write-downs, the Company recorded a $9 million after-tax ($11 million pre-tax) expense within cost of products sold related to inventory write-offs of discontinued product lines and production-related asset impairments. The charge includes $2 million after-tax ($2 million pre-tax) of Physio-Control restructuring expense that is included in Physio-Control divestiture-related costs on our consolidated statement of earnings. Additionally, included in the other related costs is an after-tax intangible asset impairment of $12 million ($19 million pre-tax) related to the discontinuance of a product line within the CardioVascular business. The fiscal year 2011 restructuring initiative was designed to restructure the business to align its cost structure to current market conditions and to continue to position the Company for long-term sustainable growth in emerging markets and new technologies. This initiative impacted most businesses and certain corporate functions. In addition to disclosing restructuring 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 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 or similar to measures presented by other companies.

(g) The $47 million ($0.04 per share) after-tax ($47 million pre-tax) certain litigation charges, net relates to the settlement of certain product litigation involving the Sprint Fidelis family of defibrillation leads. During the fourth quarter of fiscal year 2011, Medtronic renegotiated the terms of the October 15, 2010 agreement resulting in a $47 million reversal of the previously recorded amount. In addition to disclosing certain litigation charges, net 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 or similar to measures presented by other companies.

(h) The $14 million ($0.01 per share) after-tax ($14 million pre-tax) acquisition-related items include charges related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009. In addition to disclosing 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 these 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 these 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.

(i) Included in our non-GAAP net earnings is $17 million ($0.02 per share and $25 million pre-tax) after-tax income from the operations of the Physio-Control business for the three months ended April 29, 2011, which are included in earnings from discontinued operations on our consolidated statements of earnings. The Company has included this income in its non-GAAP net earnings as the disposition did not occur until the beginning of the fourth quarter of fiscal year 2012 and thus the income was earned through the operations of the Company. 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 including the operating income of the Physio-Control business. 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.

Note: The data in this schedule has been intentionally rounded and therefore the first, second, third, and fourth quarter data may not sum to the fiscal year to date totals.

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

(a) The $64 million ($0.06 per share) after-tax ($87 million pre-tax) restructuring charge is the net impact of an $88 million after-tax ($118 million pre-tax) charge related to the fiscal year 2012 initiative, partially offset by a $24 million after-tax ($31 million pre-tax) reversal of excess restructuring reserves related to the fiscal year 2011 initiative. The fiscal year 2012 initiative restructuring charge consisted of employee termination costs, asset write-downs, contract termination fees, and other related costs. The fiscal year 2012 initiative was designed to hold general, administrative and indirect distribution costs flat in certain organizations while prioritizing investment in research and development, sales, and marketing in geographies, businesses, and products where faster growth is anticipated, such as emerging markets and new technologies. The fiscal year 2011 initiative reversal of excess restructuring reserves was due to certain employees identified for elimination finding positions elsewhere within the Company, favorable severance negotiations outside the U.S., and more favorable than expected outcomes in the sub-leasing of previously vacated properties. In addition to disclosing restructuring charges 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 these restructuring charges, net. 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, net 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 $57 million ($0.05 per share) after-tax ($90 million pre-tax) certain litigation charges, net relates to the agreement in principle to settle the federal securities class action initiated by the Minneapolis Firefighters' Relief Association in December 2008. During the fourth quarter of fiscal year 2012, Medtronic reached a settlement agreement in principle to resolve all of these class claims for $85 million and incurred $5 million in additional litigation fees as a result of the agreement. In addition to disclosing certain litigation charges, net 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 or similar to measures presented by other companies.

(c) The $45 million ($0.04 per share) after-tax ($45 million pre-tax) certain acquisition-related items include charges related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009. In addition to disclosing 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 these 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 these 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.

(d) The Financial Accounting Standards Board (FASB) authoritative guidance for convertible debt accounting has resulted in an after-tax impact to net earnings of $53 million ($0.05 per share) and $106 million ($0.10 per share) for the fiscal years ended April 27, 2012 and April 29, 2011, respectively. The pre-tax impact to interest expense, net was $85 million and $170 million for the fiscal years ended April 27, 2012 and April 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 or similar to measures presented by other companies.

(e) The $170 million ($0.16 per share) after-tax ($176 million pre-tax) net gain from Physio-Control divestiture-related items includes a $204 million after-tax ($218 million pre-tax) gain recognized on the sale of Physio-Control, partially offset by $34 million of after-tax ($42 million pre-tax) transaction costs. In addition to disclosing Physio-Control divestiture-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 Physio-Control divestiture-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 Physio-Control divestiture-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.

(f) Included in our non-GAAP net earnings is $32 million ($0.03 per share and $48 million pre-tax) and $43 million ($0.04 per share and $64 million pre-tax) after-tax income from the operations of the Physio-Control business for the fiscal years ended April 27, 2012 and April 29, 2011, respectively, which are included in earnings from discontinued operations on our consolidated statements of earnings. The Company has included this income in its non-GAAP net earnings as the disposition did not occur until the beginning of the fourth quarter of fiscal year 2012 and thus the income was earned through the operations of the Company. Additionally, included in our non-GAAP net earnings for the fiscal year ended April 27, 2012 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 consolidated statements of earnings. The Company has included these items in its non-GAAP net earnings to offset the dilution to fiscal year 2012 net earnings in the second half of this fiscal year from Salient and PEAK operations. Medtronic management believes that in order to properly understand its short-term and long-term financial trends, investors may find it useful to consider income from the operations of the Physio-Control business and 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.

(g) The $198 million ($0.18 per share) after-tax ($272 million pre-tax) restructuring charge, net consisted of employee termination costs, asset write-downs, contract termination fees, and other related costs. Included in the employee termination costs were expenses associated with compensation and early retirement benefits provided to certain employees. As part of the asset write-downs, the Company recorded a $9 million after-tax ($11 million pre-tax) expense within cost of products sold related to inventory write-offs of discontinued product lines and production-related asset impairments. The charge includes $2 million after-tax ($2 million pre-tax) of Physio-Control restructuring expense that is included in Physio-Control divestiture-related costs on our consolidated statement of earnings. Additionally, included in the other related costs is an after-tax intangible asset impairment of $12 million ($19 million pre-tax) related to the discontinuance of a product line within the CardioVascular business. The fiscal year 2011 restructuring initiative was designed to restructure the business to align its cost structure to current market conditions and to continue to position the Company for long-term sustainable growth in emerging markets and new technologies. This initiative impacted most businesses and certain corporate functions. In addition to disclosing restructuring 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 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 or similar to measures presented by other companies.

(h) The $243 million ($0.22 per share) after-tax ($245 million pre-tax) certain litigation charges, net relate primarily to a settlement involving the Sprint Fidelis family of defibrillation leads and accounting charges 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 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. 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 or similar to measures presented by other companies.

(i) The $9 million ($0.01 per share) after-tax ($14 million pre-tax charge) certain acquisition-related items, net gain included an $85 million after-tax ($85 million pre-tax) gain resulting from the acquisition of Ardian, Inc. (Ardian) partially offset by $39 million after-tax ($55 million pre-tax) of certain acquisition-related costs, $11 million after-tax ($15 million pre-tax) IPR&D charge related to the NeuroPace, Inc. (NeuroPace) cross-licensing agreement, $12 million after-tax ($15 million pre-tax) of IPR&D charges related to asset purchases in the CardioVascular and Surgical Technologies businesses, and $14 million after-tax ($14 million pre-tax) related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009. As a result of the Ardian acquisition, in accordance with the FASB authoritative guidance on business combinations, Medtronic recognized an $85 million gain resulting from its previously held 11.3 percent ownership position. The certain acquisition-related costs included legal fees, severance costs, change in control costs, banker fees, other professional services fees, and contract termination costs of $16 million after-tax ($24 million pre-tax) related to the acquisition of ATS Medical Inc. and $23 million after-tax ($31 million pre-tax) related to the acquisitions of Osteotech, Inc. and Ardian that were expensed in the period. The NeuroPace IPR&D charge related to a milestone payment under existing terms of a royalty-bearing, non-exclusive patent cross-licensing agreement with NeuroPace that the Company entered into in the first quarter of fiscal year 2006. In the above IPR&D charges, product commercialization had not yet been achieved. As a result, in accordance with the FASB authoritative guidance these charges were immediately expensed as IPR&D since technological feasibility had not yet been reached and such technology had no future alternative use. 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.

(j) The $9 million ($0.01 per share) after-tax ($14 million pre-tax) executive separation costs include costs associated with the transition and retirement of Chief Executive Officer, William Hawkins. These costs were included in selling, general, and administrative expense on our consolidated statements of earnings. In addition to disclosing executive separation costs 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 executive separation 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 the impact of these executive separation 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.

(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.

(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.