Medtronic 2008 Annual Report Download - page 22

Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Understanding Our Financial Information
The following discussion and analysis provides information management
believes to be relevant to understanding the financial condition and
results of operations of Medtronic, Inc. (Medtronic or the Company). You
should read this discussion and analysis along with our consolidated
financial statements and related Notes thereto as of April 25, 2008 and
April 27, 2007 and for each of the three fiscal years ended April 25, 2008,
April 27, 2007 and April 28, 2006.
Organization of Financial Information Management’s discussion and
analysis, presented on pages 18 to 47 of this report, provides material
historical and prospective disclosures designed to enable investors and
other users to assess our financial condition and results of operations.
The consolidated financial statements are presented on pages 50 to
89 of this report, and include the consolidated statements of earnings,
consolidated balance sheets, consolidated statements of shareholders’
equity, consolidated statements of cash flows and the related Notes,
which are an integral part of the consolidated financial statements.
Financial Trends Throughout this financial information, you will read
about transactions or events that materially contribute to or reduce
earnings and materially affect financial trends. We refer to these
transactions and events as either special (such as asset impairments),
restructuring, certain litigation and purchased in-process research and
development (IPR&D) charges, or certain tax adjustments. These
charges, or benefits, result from facts and circumstances that vary in
frequency and/or impact to operations. While understanding these
charges is important in understanding and evaluating financial trends,
other transactions or events may also have a material impact on financial
trends. A complete understanding of the special, restructuring, certain
litigation and IPR&D charges and certain tax adjustments is necessary
in order to estimate the likelihood that financial trends will continue.
Our fiscal year-end is the last Friday in April, and therefore, the total
weeks in a fiscal year can fluctuate between fifty-two and fifty-three
weeks. Fiscal years 2008, 2007 and 2006 consisted of fifty-two weeks.
Executive Level Overview
We are the global leader in medical technology — alleviating pain,
restoring health and extending life for millions of people around the
world. During the first quarter of fiscal year 2008, we revised our
operating segment reporting to combine our former Vascular and
Cardiac Surgery businesses into the new CardioVascular operating
segment. Additionally, the Navigation business was separated from
Spinal for most of fiscal year 2008 and was reported as part of a
stand-alone segment named Corporate Technologies and New
Ventures. In the fourth quarter of fiscal year 2008, the decision was
made to include the Navigation business as a component of the Ear,
Nose and Throat (ENT) segment, which was renamed Surgical
Technologies to reflect the expanding scope and focus of this business.
As a result, the Company now functions in seven operating segments,
consisting of Cardiac Rhythm Disease Management (CRDM), Spinal,
CardioVascular, Neuromodulation, Diabetes, Surgical Technologies and
Physio-Control. The applicable information for fiscal years 2007 and
2006 has been reclassified to conform to the current presentation.
Through these seven operating segments, we develop, manufacture,
and market our medical devices in more than 120 countries. Our primary
products include those for cardiac rhythm disorders, cardiovascular
disease, neurological disorders, spinal conditions and musculoskeletal
trauma, urological and digestive disorders, diabetes and ear, nose, and
throat conditions.
On November 2, 2007, we consummated our $4.203 billion acquisition
of Kyphon Inc. (Kyphon) and it became our wholly owned subsidiary.
Kyphon develops and markets medical devices designed to restore and
preserve spinal function using minimally invasive technology. Kyphon’s
primary products are used in balloon kyphoplasty for the treatment of
spinal compression fractures caused by osteoporosis or cancer, and in
the interspinous process decompression (IPD) procedure for treating
the symptoms of lumbar spinal stenosis. It is expected that the
acquisition of Kyphon will add to the growth of our existing Spinal
business by extending its product offerings into some of the fastest
growing product segments of the spine market, enabling us to provide
physicians with a broader range of therapies for use at all stages of the
care continuum. For the fiscal year ended April 25, 2008, Kyphon
contributed $298 million of revenue to the Spinal business. See the
“Acquisitions” section of this management’s discussion and analysis for
further information.
Net earnings for the fiscal year ended April 25, 2008 were $2.231 billion,
a $571 million, or 20 percent, decrease from net earnings of $2.802 billion
for the fiscal year ended April 27, 2007. Diluted earnings per share were
$1.95 and $2.41 for the fiscal years ended April 25, 2008 and April 27, 2007,
respectively. Fiscal year 2008 net earnings include after-tax special,
restructuring, IPR&D and certain litigation charges that decreased net
earnings by $742 million and had a $0.65 impact on diluted earnings
per share. Fiscal year 2007 net earnings include after-tax special,
restructuring and certain litigation charges and certain tax adjustments
that increased net earnings by $5 million and had no net impact on
diluted earnings per share. See further discussion of these charges/
18 Medtronic, Inc.