Document and Entity
Document and Entity | ||
3 Months Ended
Apr. 03, 2010 | May. 03, 2010
| |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-04-03 | |
Entity Registrant Name | St Jude Medical Inc | |
Entity Central Index Key | 0000203077 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 326,776,228 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (USD $) | ||
In Thousands, except Per Share data | 3 Months Ended
Apr. 03, 2010 | 3 Months Ended
Apr. 04, 2009 |
Net sales | $1,261,696 | $1,133,793 |
Cost of sales | 321,169 | 294,495 |
Gross profit | 940,527 | 839,298 |
Selling, general and administrative expense | 443,290 | 417,675 |
Research and development expense | 151,230 | 139,351 |
Operating profit | 346,007 | 282,272 |
Other income (expense), net | (20,316) | (7,312) |
Earnings before income taxes | 325,691 | 274,960 |
Income tax expense | 87,122 | 73,689 |
Net earnings | $238,569 | $201,271 |
Net earnings per share: | ||
Basic | 0.73 | 0.58 |
Diluted | 0.73 | 0.58 |
Weighted average shares outstanding: | ||
Basic | 325,309 | 345,850 |
Diluted | 328,062 | 349,807 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Thousands | 3 Months Ended
Apr. 03, 2010 | 12 Months Ended
Jan. 02, 2010 |
Current Assets | ||
Cash and cash equivalents | $529,874 | $392,927 |
Accounts receivable, less allowance for doubtful accounts of $35,276 at April 3, 2010 and $34,947 at January 2, 2010 | 1,206,599 | 1,170,579 |
Inventories | 683,795 | 659,960 |
Deferred income taxes, net | 164,752 | 164,738 |
Other | 174,631 | 172,002 |
Total current assets | 2,759,651 | 2,560,206 |
Property, plant and equipment, at cost | 1,989,144 | 1,949,416 |
Less: accumulated depreciation | (807,125) | (796,330) |
Net property, plant and equipment | 1,182,019 | 1,153,086 |
Goodwill | 2,001,568 | 2,005,851 |
Other intangible assets, net | 441,600 | 456,142 |
Other assets | 263,047 | 250,526 |
TOTAL ASSETS | 6,647,885 | 6,425,811 |
Current Liabilities | ||
Current portion of long-term debt | 224,929 | 334,787 |
Accounts payable | 91,409 | 132,543 |
Income taxes payable | 64,664 | 13,498 |
Accrued expenses | ||
Employee compensation and related benefits | 240,340 | 269,293 |
Other | 270,318 | 317,192 |
Total current liabilities | 891,660 | 1,067,313 |
Long-term debt | 1,711,038 | 1,587,615 |
Deferred income taxes, net | 136,491 | 132,392 |
Other liabilities | 333,895 | 314,940 |
Total liabilities | 3,073,084 | 3,102,260 |
Commitments and Contingencies (Note 6) | ||
Shareholders' Equity | ||
Preferred stock ($1.00 par value; 25,000,000 shares authorized; none outstanding) | ||
Common stock ($0.10 par value; 500,000,000 shares authorized; 326,186,973 and 324,537,581 shares issued and outstanding at April 3, 2010 and January 2, 2010, respectively) | 32,619 | 32,454 |
Additional paid-in capital | 70,809 | 5,860 |
Retained earnings | 3,429,772 | 3,191,203 |
Accumulated other comprehensive income: | ||
Cumulative translation adjustment | 29,655 | 82,033 |
Unrealized gain on available-for-sale securities | 11,946 | 12,001 |
Total shareholders' equity | 3,574,801 | 3,323,551 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $6,647,885 | $6,425,811 |
1_CONDENSED CONSOLIDATED BALANC
CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) (USD $) | ||
In Thousands, except Share data | Apr. 03, 2010
| Jan. 02, 2010
|
Accounts receivable, allowance for doubtful accounts | $35,276 | $34,947 |
Preferred stock, par value | $1 | $1 |
Preferred stock, shares authorized | 25,000,000 | 25,000,000 |
Preferred stock, shares outstanding | ||
Common stock, par value | 0.1 | 0.1 |
Common stock, shares authorized | 500,000,000 | 500,000,000 |
Common stock, shares issued | 326,186,973 | 324,537,581 |
Common stock, shares outstanding | 326,186,973 | 324,537,581 |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Thousands | 3 Months Ended
Apr. 03, 2010 | 3 Months Ended
Apr. 04, 2009 |
OPERATING ACTIVITIES | ||
Net earnings | $238,569 | $201,271 |
Adjustments to reconcile net earnings to net cash from operating activities: | ||
Depreciation and amortization | 58,818 | 51,103 |
Amortization of debt discount | 217 | |
Stock-based compensation | 17,792 | 13,822 |
Excess tax benefits from stock-based compensation | (4,621) | (5,151) |
Deferred income taxes | 4,079 | 8,739 |
Changes in operating assets and liabilities, net of business acquisitions: | ||
Accounts receivable | (69,713) | (39,684) |
Inventories | (32,641) | (18,428) |
Other current assets | (5,059) | (12,757) |
Accounts payable and accrued expenses | (72,777) | (104,197) |
Income taxes payable | 57,811 | 38,988 |
Net cash provided by operating activities | 192,475 | 133,706 |
INVESTING ACTIVITIES | ||
Purchases of property, plant and equipment | (75,585) | (80,845) |
Business acquisition payments, net of cash acquired | (34,301) | (6,008) |
Other, net | (2,197) | (2,859) |
Net cash used in investing activities | (112,083) | (89,712) |
FINANCING ACTIVITIES | ||
Proceeds from exercise of stock options and stock issued | 41,114 | 16,008 |
Excess tax benefits from stock-based compensation | 4,621 | 5,151 |
Borrowings under debt facilities | 447,053 | 221,999 |
Payments under debt facilities | (432,000) | (91,400) |
Net cash provided by financing activities | 60,788 | 151,758 |
Effect of currency exchange rate changes on cash and cash equivalents | (4,233) | (6,944) |
Net increase in cash and cash equivalents | 136,947 | 188,808 |
Cash and cash equivalents at beginning of period | 392,927 | 136,443 |
Cash and cash equivalents at end of period | $529,874 | $325,251 |
Basis of Presentation
Basis of Presentation | |
3 Months Ended
Apr. 03, 2010 | |
Basis of Presentation | NOTE 1 BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of St. Jude Medical, Inc. (St. Jude Medical or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (U.S. GAAP) for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company's consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company's financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and footnotes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's consolidated financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended January 2, 2010 (2009 Annual Report on Form 10-K). Certain prior period amounts have been reclassified to conform to the current year presentation. |
New Accounting Pronouncements
New Accounting Pronouncements | |
3 Months Ended
Apr. 03, 2010 | |
New Accounting Pronouncements | NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS In October 2009, the Financial Accounting Standards Board (FASB) updated the revenue recognition accounting guidance of FASB Accounting Standards Codification (ASC) Topic 605, Revenue Recognition, relating to the accounting for revenue arrangements that involve more than one deliverable or unit of accounting. The updated guidance allows companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the economics of the transaction by revising certain thresholds for separation, and providing criteria for allocation of revenue among deliverables. The FASB also updated the scope of the revenue recognition accounting guidance of FASB ASC Topic 985, Software, removing both non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products. The updated accounting guidance is effective for annual periods beginning after June 15, 2010. Early adoption is permitted and may be prospective or retrospective. In the first quarter of 2010, the Company elected to adopt both accounting guidance updates prospectively effective January 3, 2010. The Company's adoption did not have a material impact to the first quarter of 2010 and the Company does not expect any material impacts to subsequent interim or annual 2010 periods. In December 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. ASU 2009-17 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 did not have any impact to the Company's consolidated financial statements upon completion of its ASU 2009-17 assessment during the first quarter of 2010. In January 2010, the FASB issued ASU 2010-6, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair value measurements including (i) significant transfers into and out of Level 1 and Level 2 fair value measurements and (ii) information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-6 is effective for interim and annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for interim and annual periods beginning after December 15, 2010. The Company has incorporated the additional disclosures required for Level 1 and Level 2 fair value measurements as of April 3, 2010 (see Note 12). The Company will adopt Level 3 disclosures beginning in the first quarter of 2011. |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | |
3 Months Ended
Apr. 03, 2010 | |
Goodwill and Other Intangible Assets | NOTE 3 GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill for each of the Company's reportable segments (see Note 14) for the three months ended April 3, 2010 were as follows (in thousands): CRM/NMD CV/AF Total Balance at January 2, 2010 $ 1,218,329 $ 787,522 $ 2,005,851 Foreign currency translation and other (4,065 ) (218 ) (4,283 ) Balance at April 3, 2010 $ 1,214,264 $ 787,304 $ 2,001,568 The following table provides the gross carrying amount of other intangible assets and related accumulated amortization (in thousands): April 3, 2010 January 2, 2010 Grosscarryingamount Accumulatedamortization Grosscarryingamount Accumulatedamortization Purchased technology and patents $ 503,051 $ 177,569 $ 506,893 $ 171,760 Customer lists and relationships 182,498 85,658 182,368 81,129 Trademarks and tradenames 24,370 6,906 24,286 6,336 Licenses, distribution agreements and other 5,734 3,920 5,693 3,873 $ 715,653 $ 274,053 $ 719,240 $ 263,098 |
Inventories
Inventories | |
3 Months Ended
Apr. 03, 2010 | |
Inventories | NOTE 4 INVENTORIES The Company's inventories consisted of the following (in thousands): April 3, 2010 January 2, 2010 Finished goods $ 491,799 $ 460,600 Work in process 59,714 60,702 Raw materials 132,282 138,658 $ 683,795 $ 659,960 |
Debt
Debt | |
3 Months Ended
Apr. 03, 2010 | |
Debt | NOTE 5 DEBT The Company's debt consisted of the following (in thousands): April 3, 2010 January 2, 2010 Senior notes due 2014 $ 699,089 $ 699,036 Senior notes due 2019 494,086 493,927 Senior notes due 2013 449,645 Term loan due 2011 432,000 1.02% Yen-denominated notes due 2010 224,929 226,787 Yen-denominated term loan due 2011 70,073 70,652 Fair value adjustment (a) (1,855 ) Total debt 1,935,967 1,922,402 Less: current debt obligations 224,929 334,787 Long-term debt $ 1,711,038 $ 1,587,615 (a) Fair value adjustment related to the interest rate swap to hedge the fair value of the Company's 3-year, 2.2% unsecured senior notes (2013 Senior Notes) that mature in September 2013 Expected future minimum principal payments under the Company's debt obligations are as follows: $224.9 million in 2010; $70.1 million in 2011; $450.0 million in 2013; $700.0 million in 2014; and $500.0 million in years thereafter. Senior notes due 2014: On July 28, 2009, the Company issued $700.0 million principal amount, 5-year, 3.75% unsecured senior notes (2014 Senior Notes) that mature in July 2014. Interest payments are required on a semi-annual basis. The 2014 Senior Notes were issued at a discount, yielding an effective interest rate of 3.784% at issuance. The debt discount is being amortized as interest expense through maturity. The Company may redeem the 2014 Senior Notes at any time at the applicable redemption price. Senior notes due 2019: On July 28, 2009, the Company issued $500.0 million principal amount, 10-year, 4.875% unsecured senior notes (2019 Senior Notes) that mature in July 2019. Interest payments are required on a semi-annual basis. The 2019 Senior Notes were issued at a discount, yielding an effective interest rate of 5.039% at issuance. The debt discount is being amortized as interest expense through maturity. The Company may redeem the 2019 Senior Notes at any time at the applicable redemption price. Senior notes due 2013: On March 10, 2010, the Company issued $450.0 million principal amount of 2013 Senior Notes. The majority of the net proceeds from the issuance of the 2013 Senior Notes was used to retire the Company's 3-year, unsecured term loan due 2011 (2011 Term Loan). The 2013 Senior Notes were issued at a discount, yielding an effective interest rate of 2.23% at issuance. The debt discount is being amortized as interest expense through maturity. The Company may redeem the 2013 Senior Notes at any time at the applicable redemption price. Interest payments on the 2013 Senior Notes are required on a semi-annual basis. Concurrent with the issuance of the 2013 Senior Notes, the Company entered into a 3-year, $450.0 million notional amount interest rate swap designated as a fair value hedge of the changes in fair value of the Company's fixed rate 2013 Senior Notes. As of April 3, 2010, the fair value of the swap was a $1.9 million unrealized loss which was recorded in other liabilities on the condensed consolidated balance sheet. Refer to Note 13 for additional information regarding the interest rate swap. |
Commitments and Contingencies
Commitments and Contingencies | |
3 Months Ended
Apr. 03, 2010 | |
Commitments and Contingencies | NOTE 6 COMMITMENTS AND CONTINGENCIES Litigation Silzone Litigation and Insurance Receivables: The Company has been sued in various jurisdictions beginning in March 2000 by some patients who received a heart valve product with Silzone coating, which we stopped selling in January 2000. Some of these claimants allege bodily injuries as a result of an explant or other complications, which they attribute to these products. Others, who have not had their Silzone-coated heart valve explanted, seek compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring of all other replacement heart valve patients receive. Some of the lawsuits seeking the cost of monitoring have been initiated by patients who are asymptomatic and who have no apparent clinical injury to date. The Company has vigorously defended against the claims that have been asserted and expects to continue to do so with respect to any remaining claims. While the Company has a small number of individual Silzone cases in federal and state courts outstanding, the Company's historical experience with similar cases and the Company's expectations for these specific cases are that it will be able to resolve them at minimal, if any, cost to the Company. The Company has been able to successfully resolve class action matters in British Columbia and Quebec. As part of the British Columbia class action settlement, the Company made a $2.1 million payment in March 2010. As part of the Quebec class action settlement, the Company made a $5.7 million payment in April 2010. The Quebec class action settlement also resolved the claim raised by the Quebec Provincial health insurer seeking to recover the cost of insured services furnished or to be furnished to class members in the Quebec class action. The Company has two outstanding class action cases in Ontario and one individual case in British Columbia by the Provincial health insurer. In Ontario, a class action case involving Silzone patients has been certified, and the trial began in February 2010. A second case seeking class action status in Ontario has been stayed pending resolution of the ongoing Ontario class action. The complaints in the Ontario cases request damages up to 2.0 billion Canadian Dollars (the equivalent of $2.0 billion at April 3, 2010). Based on the Company's historical experience, the amount ultimately paid, if any, often does not bear any relationship to the amount claimed. The British Columbia Provincial health insurer has a lawsuit seeking to recover the cost of insured services furnished or to be furnished to class members in the British Columbia class action, and that lawsuit remains pending in the British Columbia court. The Company has recorded an accrual for probable legal costs, settlements and judgments for Silzone related litigation. The Company is not aware of any unasserted claims related to Silzone-coated products. For all Silzone legal costs incurred, the Company records insurance receivables for the amounts that it expects to recover. Any costs (the material components of which are settlements, judgments, legal fees and other related defense co |
Special Charges
Special Charges | |
3 Months Ended
Apr. 03, 2010 | |
Special Charges | NOTE 7 SPECIAL CHARGES During 2009, the Company incurred charges totaling $107.7 million, of which $71.1 million related to severance and benefit costs for approximately 725 employees. These costs were recognized after management determined that such severance and benefits were probable and estimable, in accordance with ASC Topic 712, Nonretirement Postemployment Benefits. Of the total $71.1 million severance and benefits charge, $6.6 million was recorded in cost of sales. The Company also recorded $17.7 million of inventory related charges to cost of sales associated with inventory that would be scrapped in connection with the Company's decision to terminate certain product lines in its CRM and Atrial Fibrillation (AF) divisions that were redundant with other existing products lines. Additionally, the Company recorded $5.9 million of fixed asset related charges to cost of sales associated with the accelerated depreciation of phasing out older model diagnostic equipment and $6.1 million of asset write-offs related to the carrying value of assets that will no longer be utilized. Of the $6.1 million charge, $3.5 million was recorded in cost of sales. The Company also recorded charges of $1.8 million associated with contract terminations and $5.1 million of other unrelated costs. A summary of the activity related to the 2009 special charge accrual is as follows (in thousands): Employeeterminationcosts Inventorycharges Fixed assetcharges Other Total Balance at January 3, 2009 $ $ $ $ $ Special charges 71,158 17,735 11,982 6,869 107,744 Non-cash charges used (17,735 ) (11,982 ) (29,717 ) Cash paym ents (22,560 ) (349 ) (22,909 ) Foreign exchange rate im pact (758 ) (758 ) Balance at January 2, 2010 $ 47,840 $ $ $ 6,520 $ 54,360 Cash paym ents (16,247 ) (10 ) (16,257 ) Foreign exchange rate im pact (953 ) (140 ) (1,093 ) Balance at April 3, 2010 $ 30,640 $ $ $ 6,370 $ 37,010 In order to enhance segment comparability and reflect management's focus on the ongoing operations of the Company, the 2009 special charges were not recorded in the individual reportable segments. |
Net Earnings per Share
Net Earnings per Share | |
3 Months Ended
Apr. 03, 2010 | |
Net Earnings Per Share | NOTE 8 NET EARNINGS PER SHARE The table below sets forth the computation of basic and diluted net earnings per share (in thousands, except per share amounts): Three Months Ended April 3, 2010 April 4, 2009 Numerator: Net earnings $ 238,569 $ 201,271 Denominator: Basic-weighted average shares outstanding 325,309 345,850 Dilutive options and restricted stock 2,753 3,957 Diluted-weighted average shares outstanding 328,062 349,807 Basic net earnings per share $ 0.73 $ 0.58 Diluted net earnings per share $ 0.73 $ 0.58 Approximately 18.2 million and 24.5 million shares of common stock subject to stock options and restricted stock were excluded from the diluted net earnings per share computation for the three months ended April 3, 2010 and April 4, 2009, respectively, because they were not dilutive. |
Comprehensive Income
Comprehensive Income | |
3 Months Ended
Apr. 03, 2010 | |
Comprehensive Income | NOTE 9 COMPREHENSIVE INCOME The table below sets forth the principal components in other comprehensive income (loss), net of the related income tax impact (in thousands): Three Months Ended April 3, 2010 April 4, 2009 Net earnings $ 238,569 $ 201,271 Other comprehensive income (loss): Cumulative translation adjustment (52,378 ) (38,141 ) Unrealized loss on available-for-sale securities (55 ) (2,654 ) Total comprehensive income $ 186,136 $ 160,476 |
Other Income
Other Income (Expense), Net | |
3 Months Ended
Apr. 03, 2010 | |
Other Income (Expense), Net | NOTE 10 OTHER INCOME (EXPENSE), NET The Company's other income (expense) consisted of the following (in thousands): Three Months Ended April 3, 2010 April 4, 2009 Interest income $ 251 $ 559 Interest expense (20,155 ) (6,951 ) Other (412 ) (920 ) Total other income (expense), net $ (20,316 ) $ (7,312 ) |
Income Taxes
Income Taxes | |
3 Months Ended
Apr. 03, 2010 | |
Income Taxes | NOTE 11 INCOME TAXES As of April 3, 2010, the Company had approximately $125.1 million of unrecognized tax benefits, all of which would affect the Company's effective tax rate if recognized. The Company had $30.1 million accrued for interest and penalties as of April 3, 2010. The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for all tax years through 2001. Additionally, substantially all material foreign, state, and local income tax matters have been concluded for all tax years through 1999. The U.S. Internal Revenue Service (IRS) completed an audit of the Company's 2002-2005 tax returns and proposed adjustments in its audit report issued in November 2008. The Company is vigorously defending its positions and initiated defense of these adjustments at the IRS appellate level in January 2009. An unfavorable outcome could have a material negative impact on the Company's effective income tax rate in future periods. |
Fair Value Measurements and Fin
Fair Value Measurements and Financial Instruments | |
3 Months Ended
Apr. 03, 2010 | |
Fair Value Measurements and Financial Instruments | NOTE 12 FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS The fair value measurement accounting standard, codified in ASC Topic 820, provides a framework for measuring fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The standard establishes a valuation hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on independent market data sources. Unobservable inputs are inputs that reflect the Company's assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available. The valuation hierarchy is composed of three categories. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows: * Level 1 Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. * Level 2 Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. * Level 3 Inputs to the fair value measurement are unobservable inputs or valuation techniques. Assets and Liabilities that are Measured at Fair Value on a Recurring Basis The fair value measurement standard applies to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). These financial assets and liabilities include money-market securities, trading marketable securities, available-for-sale marketable securities and derivative instruments. The Company continues to record these items at fair value on a recurring basis and the fair value measurements are applied using ASC Topic 820. The Company does not have any material nonfinancial assets or nonfinancial liabilities that are measured at fair value on a recurring basis. A summary of the valuation methodologies used for the respective financial assets and liabilities measured at fair value is as follows: Money-market securities: The Company's money-market securities include funds that are traded in active markets and are recorded at fair value based upon the quoted market prices. The Company classifies these securities as level 1. Trading securities: The Company's trading securities include publicly-traded mutual funds that are traded in active markets and are recorded at fair value based upon the net asset values of shares. The Company classifies these se |
Derivative Financial Instrument
Derivative Financial Instruments | |
3 Months Ended
Apr. 03, 2010 | |
Derivative Financial Instruments | NOTE 13 DERIVATIVE FINANCIAL INSTRUMENTS The Company follows the provisions of ASC Topic 815 in accounting for and disclosing derivative instruments and hedging activities. All derivative financial instruments are recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recognized in net earnings or other comprehensive income depending on whether the derivative is designated as part of a qualifying hedging transaction. Derivative assets and derivative liabilities are classified as other current assets, other assets, other current liabilities or other liabilities, as appropriate. Derivative Foreign Currency Forward Contracts The Company hedges a portion of its foreign currency exchange rate risk through the use of forward exchange contracts. The Company uses forward exchange contracts to manage foreign currency exposures related to intercompany receivables and payables arising from intercompany purchases of manufactured products. These forward contracts are not designated as qualifying hedging relationships under ASC Topic 815. The Company measures its foreign currency exchange contracts at fair value on a recurring basis. The fair value of outstanding contracts was immaterial as of April 3, 2010 and January 2, 2010. During the first three months of 2010 and 2009, the net amount of gains (losses) the Company recorded to other income (expense) for its forward currency exchange contracts not designated as hedging instruments under ASC Topic 815 was a net gain of $2.3 million and a net gain of $1.9 million, respectively. These net gains were almost entirely offset by corresponding net losses on the foreign currency exposures being managed. The Company does not enter into contracts for trading or speculative purposes. The Company's policy is to enter into hedging contracts with major financial institutions that have at least an "A" (or equivalent) credit rating. Derivative Interest Rate Swap The Company hedges the fair value of certain debt obligations through the use of interest rate swap contracts For interest rate swap contracts that are designated and qualify as fair value hedges, the gain or loss on the swap and the offsetting gain or loss on the hedged debt instrument attributable to the hedged risk are recognized in net earnings. Changes in the value of the fair value hedge are recognized in interest expense, offsetting the changes in the fair value of the hedged debt instrument. Additionally, any interest payments made or received are recognized as interest expense. The Company's current interest rate swap is designed to manage the exposure to changes in the fair value of its 2013 Senior Notes. The swap is designated as a fair value hedge of the variability of the fair value of the fixed-rate 2013 Senior Notes due to changes in the long-term benchmark interest rates. Under the swap agreement, the Company agrees to exchange, at specified intervals, fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. As of April 3, 2010, the fair value of the interest rate swap was a $1.9 million unrealized loss which was recorded to other liabilities on |
Segment and Geographic Informat
Segment and Geographic Information | |
3 Months Ended
Apr. 03, 2010 | |
Segment and Geographic Information | NOTE 14 SEGMENT AND GEOGRAPHIC INFORMATION Segment Information The Company's four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF), and Neuromodulation (NMD). The primary products produced by each operating segment are: CRM ICDs and pacemakers; CV vascular closure devices, heart valve replacement and repair products and pressure measurement guidewires; AF EP introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD neurostimulation devices. The Company has aggregated the four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/NMD and CV/AF. Net sales of the Company's reportable segments include end-customer revenues from the sale of products they each develop and manufacture or distribute. The costs included in each of the reportable segments' operating results include the direct costs of the products sold to customers and operating expenses managed by each of the reportable segments. Certain operating expenses managed by the Company's selling and corporate functions, including all stock-based compensation expense, impairment charges, IPRD charges and special charges have not been recorded in the individual reportable segments. As a result, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments. Additionally, certain assets are managed by the Company's selling and corporate functions, principally including trade receivables, inventory, corporate cash and cash equivalents and deferred income taxes. For management reporting purposes, the Company does not compile capital expenditures by reportable segment; therefore, this information has not been presented as it is impracticable to do so. The following table presents net sales and operating profit by reportable segment (in thousands): CRM/NMD CV/AF Other Total Three Months ended April 3, 2010: Net sales $ 836,031 $ 425,665 $ $ 1,261,696 Operating profit 523,937 243,714 (421,644 ) 346,007 Three Months ended April 4, 2009: Net sales $ 748,768 $ 385,025 $ $ 1,133,793 Operating profit 461,030 190,885 (369,643 ) 282,272 The following table presents the Company's total assets by reportable segment (in thousands): Total Assets April 3, 2010 January 2, 2010 CRM/NMD $ 2,137,584 $ 2,124,534 CV/AF 1,319,575 1,294,009 Other 3,190,726 3,007,268 $ 6,647,885 $ 6,425,811 Geographic Information The following table presents net sales by geographic location of the customer (in thousands): Three Months Ended Net Sales April 3, 2010 April 4, 2009 United States $ 648,933 $ 631,173 International Europe 337,080 275,400 Japan 128,662 111,370 Asia Pacific 68,888 52,906 Other (a) 78,133 62,944 612,763 502,620 $ 1,261,696 $ 1,133,793 (a) No one geographic market is grea |