Document and Entity Information
Document and Entity Information | ||
3 Months Ended
Mar. 31, 2010 | Apr. 15, 2010
| |
Trading Symbol | ISRG | |
Entity Registrant Name | INTUITIVE SURGICAL INC | |
Entity Central Index Key | 0001035267 | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 39,166,066 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current assets: | ||
Cash and cash equivalents | 313.6 | 221.4 |
Short-term investments | 429.8 | 334 |
Accounts receivable, net | 180.2 | 205.4 |
Inventory | 68.5 | 57.6 |
Prepaids and other assets | 20.1 | 20.9 |
Deferred tax assets | 7.3 | 7.3 |
Total current assets | 1019.5 | 846.6 |
Property, plant and equipment, net | 132.9 | 125.7 |
Long-term investments | 652.1 | 616.6 |
Long-term deferred tax asset | 48.4 | 53.4 |
Intangible assets, net | 52.4 | 56.2 |
Goodwill | 110.7 | 110.7 |
Other assets | 0.6 | 0.5 |
Total assets | 2016.6 | 1809.7 |
Current liabilities: | ||
Accounts payable | 34.4 | 27.6 |
Accrued compensation and employee benefits | 30.6 | 49.8 |
Deferred revenue | 103.3 | 99.4 |
Other accrued liabilities | 5.5 | 26 |
Total current liabilities | 173.8 | 202.8 |
Long-term liabilities | 72.8 | 69.6 |
Total liabilities | 246.6 | 272.4 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of March 31, 2010 and December 31, 2009 | 0 | 0 |
Common stock, 100.0 shares authorized, $0.001 par value, 39.2 and 38.5 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively | 0 | 0 |
Additional paid-in capital | 1170.8 | 1024.3 |
Retained earnings | 597 | 511.7 |
Accumulated other comprehensive income (loss) | 2.2 | 1.3 |
Total stockholders' equity | 1,770 | 1537.3 |
Total liabilities and stockholders' equity | 2016.6 | 1809.7 |
1_CONDENSED CONSOLIDATED BALANC
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (unaudited) (USD $) | |
Share data in Millions, except Per Share data | Mar. 31, 2010
|
Preferred stock, shares authorized | 2.5 |
Preferred stock, par value | 0.001 |
Preferred stock, shares issued | 0 |
Preferred stock, shares outstanding | 0 |
Common stock, shares authorized | 100 |
Common stock, par value | 0.001 |
Common stock, shares issued | 39.2 |
Common stock, shares outstanding | 38.5 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenue: | ||
Product | $278 | 149.1 |
Service | 50.6 | 39.3 |
Total revenue | 328.6 | 188.4 |
Cost of revenue: | ||
Product | 68 | 45.3 |
Service | 20.1 | 14.4 |
Total cost of revenue | 88.1 | 59.7 |
Gross profit | 240.5 | 128.7 |
Operating expenses: | ||
Selling, general and administrative | 82.8 | 62.4 |
Research and development | 28 | 21.3 |
Total operating expenses | 110.8 | 83.7 |
Income from operations | 129.7 | 45 |
Interest and other income, net | 4.1 | 5 |
Income before income taxes | 133.8 | 50 |
Income tax expense | 48.5 | 21.9 |
Net income | 85.3 | 28.1 |
Net income per common share: | ||
Basic | 2.2 | 0.72 |
Diluted | 2.12 | 0.72 |
Shares used in computing basic and diluted net income per common share: | ||
Basic | 38.8 | 38.9 |
Diluted | 40.2 | 39.3 |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Operating activities: | ||
Net income | 85.3 | 28.1 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation | 5.6 | 4.2 |
Amortization of intangible assets | 3.9 | 3.8 |
Deferred income taxes | 5 | -2.5 |
Share-based compensation expense | 26.8 | 22.7 |
Excess tax benefit from stock-based compensation | -32.2 | 0 |
Income tax benefits from employee stock option plans | 27.3 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 25.2 | 30.8 |
Inventory | -10.9 | -0.9 |
Prepaids and other assets | 2 | -1.4 |
Accounts payable | 7 | 0.8 |
Accrued compensation and employee benefits | -19.1 | (15) |
Deferred revenue | 3.8 | 19 |
Accrued liabilities | -14.1 | 0.5 |
Net cash provided by operating activities | 115.6 | 90.1 |
Investing activities: | ||
Purchase of investments | -243.2 | -133.7 |
Proceeds from sales and maturities of investments | 111.8 | 117.9 |
Purchase of property and equipment and acquisition of intellectual property | -16.2 | -27.5 |
Net cash used in investing activities | -147.6 | -43.3 |
Financing activities: | ||
Proceeds from issuance of common stock, net | 92.5 | 5.6 |
Excess tax benefit from stock-based compensation | 32.2 | 0 |
Repurchase and retirement of common stock | 0 | (150) |
Net cash (used in) provided by financing activities | 124.7 | -144.4 |
Effect of exchange rate changes on cash and cash equivalents | -0.5 | -0.4 |
Net increase (decrease) in cash and cash equivalents | 92.2 | (98) |
Cash and cash equivalents, beginning of period | 221.4 | 194.6 |
Cash and cash equivalents, end of period | 313.6 | 96.6 |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | |
3 Months Ended
Mar. 31, 2010 | |
DESCRIPTION OF BUSINESS | NOTE 1. DESCRIPTION OF BUSINESS Intuitive Surgical, Inc. designs, manufactures, and markets the da Vinci Surgical System, which is an advanced surgical system that the Company believes represents a new generation of surgery. The da Vinci Surgical System consists of a surgeon's console or consoles, a patient-side cart, a high performance vision system and proprietary "wristed" instruments. The da Vinci Surgical System translates the surgeon's natural hand movements on instrument controls at the console into corresponding micro-movements of instruments positioned inside the patient through small puncture incisions, or ports. The Company markets its products through sales representatives in the United States, and through a combination of sales representatives and distributors in its international markets. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
3 Months Ended
Mar. 31, 2010 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements ("financial statements") of Intuitive Surgical, Inc., and its wholly-owned subsidiaries have been prepared on a consistent basis with the December 31, 2009 audited Consolidated Financial Statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"), and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). These financial statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which was filed on January 29, 2010. The results of operations for the first three months of fiscal 2010 are not indicative of the results to be expected for the entire fiscal year or any future periods. New Accounting Standards Recently Adopted Revenue Recognition for Arrangements with Multiple Deliverables The Company's revenue consists of product revenue resulting from the sales of systems, instruments and accessories, and service revenue. The Company recognizes revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred or service has been rendered; the price is fixed or determinable; and collectibility is reasonably assured. The Company's revenue recognition policy generally results in revenue recognition at the following points: * System sales. For system sales directly to end customers, revenue is recognized when acceptance occurs, which is deemed to have occurred upon the receipt by the Company of a form executed by the customer acknowledging delivery and/or installation. For system sales through distributors, revenue is recognized upon transfer of title and risk of loss, which is generally at the time of shipment. Distributors do not have price protection rights. The Company's system contracts do not allow rights of return. The Company's system revenue contains a software component. Since the da Vinci System's software and non-software elements function together to deliver the System's essential functionality, they are considered to be one deliverable that is excluded from the software revenue recognition guidance. * Instruments and accessories. Revenue from sales of instruments and accessories is recognized when the product has been shipped. The Company records an allowance on instruments and accessories sales returns based on historical returns experience. * Service. Service contract revenue is recognized ratably over the term of the service period. Revenue related to services performed on a time-and-materials basis is recognized when it is earned and billable. The Company determin |
CASH, CASH EQUIVALENTS & INVEST
CASH, CASH EQUIVALENTS & INVESTMENTS | |
3 Months Ended
Mar. 31, 2010 | |
CASH, CASH EQUIVALENTS & INVESTMENTS | NOTE 3. CASH, CASH EQUIVALENTS INVESTMENTS The following tables summarize the Company's cash, cash equivalents and investments as of March 31, 2010 and December 31, 2009 (in millions): AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue March31, 2010 Cash and cash equivalents: Cash $ 31.5 $ - $ - $ 31.5 Cash equivalents 282.1 - - 282.1 Total cash and cash equivalents $ 313.6 $ - $ - $ 313.6 Available for sale investments: Short-term Commercial paper $ 31.7 $ - $ - $ 31.7 Municipal notes 44.0 0.2 - 44.2 U.S. corporate debt 169.7 1.0 - 170.7 U.S. treasuries 40.5 0.1 - 40.6 U.S. government agencies 80.3 0.5 (0.1 ) 80.7 Total short-term $ 366.2 $ 1.8 $ (0.1 ) $ 367.9 Long-term Municipal notes $ 150.3 $ 1.1 $ (4.4 ) $ 147.0 U.S. corporate debt 246.8 2.4 (0.1 ) 249.1 U.S. treasuries 21.1 - - 21.1 U.S. government agencies 234.4 0.6 (0.1 ) 234.9 Total long-term $ 652.6 $ 4.1 $ (4.6 ) $ 652.1 Total cash, cash equivalents and available for sale investments: $ 1,332.4 $ 5.9 $ (4.7 ) $ 1,333.6 Other securities (included in short-term investments): Trading securities, auction rate securities $ 54.7 $ - $ - $ 54.7 Put option 7.2 - - 7.2 Total cash, cash equivalents and investments: $ 1,394.3 $ 5.9 $ (4.7 ) $ 1,395.5 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue December31, 2009 Cash and cash equivalents: Cash $ 28.6 $ - $ - $ 28.6 Cash equivalents 192.8 - - 192.8 Total cash and cash equivalents $ 221.4 $ - $ - $ 221.4 Available for sale investments: Short-term Commercial paper $ 13.1 $ - $ - $ 13.1 Municipal notes 21.3 0.2 - 21.5 U.S. corporate debt 150.5 1.3 - 151.8 U.S. treasuries 31.6 0.2 - 31.8 U.S. government agencies 45.5 0.5 - 46.0 Total short-term $ 262.0 $ 2.2 $ - $ 264.2 Long-term Municipal notes $ 161.0 $ 1.5 $ (4.5 ) $ 158.0 U.S. corporate debt 222.5 2.1 (0.1 ) 224.5 U.S. treasuries 29.5 - (0.2 ) 29.3 U.S. government agencies 204.6 0.6 (0.4 ) 204.8 Total long-term $ 617.6 $ 4.2 $ (5.2 ) $ 616.6 Total cash, cash equivalents and available for sale investments $ 1,101.0 $ 6.4 $ (5.2 ) $ 1,102.2 Other securities (included in short-term investments): Trading securities, auction rate securities $ 62.2 $ - $ - $ 62.2 Put option 7.6 - - 7.6 Total cash, cash equivalents and investments $ 1,170.8 $ 6.4 $ (5.2 ) $ 1,172.0 The following table summarizes the maturities of the Company's cash equivalents and available-for-sale investments at March 31, 2010 (in millions): AmortizedCost FairValue Mature in less than one year $ 648.3 $ 650.0 Mature in one to five years 629.2 633.0 Mature in more than five years 23.4 19.1 Total $ 1 |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | |
3 Months Ended
Mar. 31, 2010 | |
FAIR VALUE MEASUREMENTS | NOTE 4. FAIR VALUE MEASUREMENTS The Company measures certain financial assets, including cash equivalents, available-for-sale securities, trading securities and foreign currency derivatives at their fair value. The fair value of these financial assets was determined based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following tables represent the Company's fair value hierarchy for its financial assets and liabilities as of March 31, 2010 and December 31, 2009 (in millions): FairValueMeasurementsatMarch31,2010Using Assets Level 1 Level 2 Level 3 Total Municipal notes - trading security $ - $ - $ 54.7 $ 54.7 Put option - - 7.2 7.2 Available-for-sale securities Money Market funds 270.0 - - 270.0 U.S. treasuries 61.7 - - 61.7 Commercial paper - 43.8 - 43.8 Corporate debt - 419.8 - 419.8 U.S. government agencies - 315.6 - 315.6 Municipal notes - 172.1 19.1 191.2 Total available-for-sale securities 331.7 951.3 19.1 1,302.1 Foreign Currency Derivatives - 2.0 - 2.0 Total assets measured at fair value $ 331.7 $ 953.3 $ 81.0 $ 1,366.0 FairValueMeasurementsatDecember31,2009Using Assets Level 1 Level 2 Level 3 Total Municipal notes - trading security $ - $ - $ 62.2 $ 62.2 Put option - - 7.6 7.6 Available-for-sale securities Money Market funds 175.7 - - 175.7 U.S. treasuries 61.1 - - 61.1 Commercial paper - 27.4 - 27.4 Corporate debt - 379.0 - 379.0 U.S. government agencies - 250.9 - 250.9 Municipal notes - 160.4 19.1 179.5 Total available-for-sale securities 236.8 817.7 19.1 1,073.6 Total assets measured at fair value $ 236.8 $ 817.7 $ 88.9 $ 1,143.4 Liabilities Foreign Currency Derivatives $ - $ 0.4 $ - $ 0.4 Total liabilities measured at fair value $ - $ 0.4 $ - $ 0.4 The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (Level 3) (in millions): FairValueMeasurementsatReporting Date UsingSignificantUnobservableInputs(Level 3) Put Option ARS Balance at January1, 2010 $ 7.6 $ 81.3 Sales/Maturities - (8.1 ) Total gains or (losses): Included in other comprehensive loss - 0.2 Included in earnings (0.4 ) 0.4 Balance at March31, 2010 $ 7.2 $ |
INVENTORY
INVENTORY | |
3 Months Ended
Mar. 31, 2010 | |
INVENTORY | NOTE 5. INVENTORY The following table provides details of selected balance sheet items (in millions): March31,2010 December 31,2009 Inventory Raw materials $ 17.5 $ 16.3 Work-in-process 2.9 2.5 Finished goods 48.1 38.8 Total $ 68.5 $ 57.6 |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | |
3 Months Ended
Mar. 31, 2010 | |
STOCKHOLDERS' EQUITY | NOTE 6. STOCKHOLDERS' EQUITY Comprehensive Income The components of other comprehensive income, net of tax, are as follows (in millions): ThreemonthsendedMarch31, 2010 2009 Net income $ 85.3 $ 28.1 Foreign currency translation losses (0.2 ) (0.2 ) Unrealized gains (losses) on derivative instruments, net of tax: Unrealized gains on derivative instruments 2.0 0.4 Reclassification adjustment for gains on derivative instruments recognized during the period (0.9 ) (0.2 ) Unrealized gains (losses) on available-for-sale securities, net of tax: Unrealized gains arising during the period - 2.0 Total other comprehensive income $ 86.2 $ 30.1 The components of accumulated other comprehensive income are as follows (in millions): March31,2010 December 31,2009 Foreign currency translation gains $ 0.2 $ 0.4 Accumulated net realized gains on derivatives, net of tax 1.1 - Accumulated net realized gains on available-for-sale securities, net of tax 0.9 0.9 Total accumulated other comprehensive income $ 2.2 $ 1.3 Stock Option Plans A summary of stock option activity under the 2000 Equity Incentive Plan, the 2000 Non-Employee Directors' Plan and the 2009 Employment Commencement Incentive Plan for the three months ended March 31, 2010 is presented as follows (in millions, except per share amounts): StockOptionsOutstanding SharesAvailableforGrant NumberOutstanding WeightedAverageExercise PricePer Share Balance at December31, 2009 8.9 4.6 $ 157.25 Options granted (1.1 ) 1.1 333.28 Options exercised - (0.6 ) 146.49 Options forfeited/expired (1) (7.3 ) - - Balance at March31, 2010 0.5 5.1 $ 197.17 (1) Primarily related to the expiration of the 2000 Equity Incentive Plan. As of March 31, 2010, 1.9 million shares of options were exercisable at a weighted-average price of $139.72 per share. Employee Stock Purchase Plan Under the Employee Stock Purchase Plan ("ESPP"), employees purchased approximately 82,948 shares for $7.7 million and 55,185 shares for $4.7 million during the three months ended March 31, 2010 and March 31, 2009, respectively. Stock-based Compensation The following table summarizes stock-based compensation charges (in millions): ThreeMonthsEndedMarch31, 2010 2009 Cost of sales - products $ 2.1 $ 1.8 Cost of sales - services 1.9 1.5 Total cost of sales 4.0 3.3 Selling, general and administrative 17.8 14.4 Research and development 5.0 5.0 Stock-based compensation expense before income taxes 26.8 22.7 Income taxes 7.6 7.2 Stock-based compensation expense after income taxes $ 19.2 $ 15.5 The fair value of each option grant and the fair value of the option component of the ESPP shares were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions, assuming no expected dividends: Stock Options ESPP ThreeMonthsEndedMarch 31, ThreeMonthsEndedMarch 31, 2010 2009 2010 2009 Average risk fre |
INCOME TAXES
INCOME TAXES | |
3 Months Ended
Mar. 31, 2010 | |
INCOME TAXES | NOTE 7. INCOME TAXES As part of the process of preparing the unaudited Condensed Consolidated Financial Statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves estimating the current tax liability under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the accompanying unaudited Condensed Consolidated Balance Sheets. Income tax expense for the three month period ended March 31, 2010 was $48.5 million, or 36.2% of pre-tax income, compared with $21.9 million, or 43.8% of pre-tax income for the three month period ended March 31, 2009. The effective tax rate for the three month period ended March 31, 2010 differs from the U.S. federal statutory rate of 35% primarily due to state income taxes and non-deductible stock option expenses, partially offset by the effect of income earned by certain of the Company's overseas entities being taxed at rates lower than the federal statutory rate. The Company intends these foreign earnings to be indefinitely reinvested outside the United States. The effective tax rate for the three month period ended March 31, 2009 differs from the U.S. federal statutory rate of 35% primarily due to state income taxes and non-deductible stock option expenses, partially offset by 2009 research and development ("RD") credits and domestic production deductions. The state income taxes for the three month period ended March 31, 2009 included a discrete increase of approximately 3.1% resulting from re-measurement of long term deferred tax assets due to a California law change enacted in February 2009. As of March 31, 2010, the Company had total gross unrecognized tax benefits of approximately $73.1 million compared with approximately $70.0 million as of December 31, 2009, representing an increase of approximately $3.1 million for the first three months of fiscal 2010. Of the total gross unrecognized tax benefits, $68.8 million and $65.7 million as of March 31, 2010 and December 31, 2009, respectively, if recognized, would reduce the Company's effective tax rate in the period of recognition. Gross interest related to unrecognized tax benefit accrued was approximately $3.5 million and $3.3 million, respectively, as of March 31, 2010 and December 31, 2009. The Company files federal, state and foreign income tax returns in many jurisdictions in the United States and abroad. For U.S. federal and California income tax purposes, the statute of limitations currently remain open for all years since inception due to utilization of net operating losses and RD credits generated in prior years. |
NET INCOME PER SHARE
NET INCOME PER SHARE | |
3 Months Ended
Mar. 31, 2010 | |
NET INCOME PER SHARE | NOTE 8. NET INCOME PER SHARE The following table presents the computation of basic and diluted net income per share (in millions, except per share data): ThreeMonthsEndedMarch31, 2010 2009 Net income $ 85.3 $ 28.1 Basic: Weighted-average shares outstanding 38.8 38.9 Basic net income per share $ 2.20 $ 0.72 Diluted: Weighted-average shares outstanding used in basic calculation 38.8 38.9 Add common stock equivalents 1.4 0.4 Weighted-average shares used in computing diluted net income per shares 40.2 39.3 Diluted net income per share $ 2.12 $ 0.72 Employee stock options to purchase approximately 0.8 million and 3.4 million weighted shares for the three months ended March 31, 2010 and 2009, respectively, were outstanding, but were not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the periods presented. |