Jan 30, 2001
Guidant Reports Fourth Quarter Sales Increase of 13 Percent to $649 Million; Record Fourth Quarter Earnings, as Adjusted, of $0.41 per Share
Full Year Net Income Grew 20 Percent, as Adjusted
Indianapolis, IN - Guidant Corporation (NYSE and PCX: GDT), a world leader in medical technology, today reported fourth quarter sales were $648.8 million - up 13 percent versus the prior year. Full year 2000 sales totaled a record $2.549 billion, increasing 8 percent over the prior year while net income of $491.5 million, as adjusted, grew 20 percent. Excluding special items in both periods*, record fourth quarter net income of $125.6 million and earnings per share of $0.41 each grew 12 percent over the fourth quarter of 1999. Reported net income and earnings per share for the quarter were $8.4 million and $0.03, respectively, compared to $95.5 million or $0.31 per share in the fourth quarter of 1999 and reflect a one-time special item related to the write-off of an unexercised technology option.
Three Months Ended December 31, 2000
"On a constant currency basis, fourth quarter sales grew 16 percent compared to the prior year, making it the fastest growing quarter of the year," stated Ronald W. Dollens, Guidant president and chief executive officer. "Guidant's newly-launched flagship products, the MULTI-LINK TETRA(tm) Coronary Stent System and the VENTAK® PRIZM(tm) 2 Implantable Cardioverter Defibrillator System, exited the year on a positive trajectory," he continued. "Other bright spots in the quarter included U.S. pacemaker, balloon dilatation catheter, and endovascular abdominal aortic aneurysm (AAA) graft sales," Dollens continued. Pointing to potential for future growth, Dollens commented, "Our emerging opportunities, including products for heart failure, peripheral vascular disease, beating heart bypass surgery, AAA, and intravascular radiotherapy accounted for $58 million in the quarter, and grew 25 percent sequentially from the third quarter 2000. These initial sales figures are more remarkable in that we are not yet realizing sales from U.S. market released products for heart failure or intravascular radiotherapy."
"Going forward, we anticipate some challenging comparisons in the first half of the year, but should be well positioned for growth acceleration in the last two quarters of 2001," Dollens observed. "For full-year 2001, double-digit sales growth along with earnings growth that slightly exceeds sales growth should be achievable," said Dollens. "Sales growth throughout 2001 will stem from contributions of our traditional product lines, along with significant growth performances from our emerging technologies," concluded Dollens.
Gross profit for Guidant in the fourth quarter of $497 million represented 76.6 percent of sales and reflected a sequential improvement of 140 basis points from the third quarter of 2000. Gross profit percentage for the fourth quarter of 1999 was 78.2 percent. Last year's gross profit benefited from a change in warranty expense estimation.**
Total operating expenses for the fourth quarter grew by 10 percent over the fourth quarter of 1999, and increased at a slower rate than sales. As a result, operating expenses as a percent of sales decreased from 45 percent to 44 percent. Multiple product launches and sales force expansion costs drove increases in sales, marketing, and administrative expenses over the prior year. "We are progressing well in achieving our objective of adding over 225 cardiac rhythm management sales personnel in the U.S. by the middle of the year. This will greatly enhance our competitive posture and position us favorably to take advantage of future heart failure market development opportunities," remarked Dollens. "Further, Guidant continues to invest in bresearch and development at an industry peer-leading rate of 14 percent of sales," he continued.
Operating income grew 11 percent to $210.9 million. Other expenses decreased by $4.5 million over the prior year due primarily to a gain on sale of an equity investment, miscellaneous income, and lower interest expenses, which were partially offset by higher royalty expense in the period. The company's effective tax rate for the quarter and the year, excluding the special item, was 32 percent, reflecting benefits from strategic investments in research and development and growth in overseas manufacturing. The effective tax rate for the full year 1999 was 35.4 percent.
Overall in the quarter, excluding special items in both years, the company posted record net income of $125.6 million, and a 12 percent increase in earnings per share to $0.41. Guidant achieved its record net income in spite of a higher tax rate in the fourth quarter of 2000 versus 1999 - 32 percent versus 29.2 percent, respectively. Reported net income and earnings per share for the quarter were $8.4 million and $0.03, respectively, compared to $95.5 million or $0.31 per share in the fourth quarter of 1999.
Twelve Months Ended December 31, 2000
For the full year 2000, Guidant reported net sales of $2.549 billion, 8 percent greater than 1999. On a constant currency basis, full year sales growth would have been 10 percent. Gross profit increased 8 percent over the 1999 adjusted level to $1.945 billion and represented 76.3 percent of sales. Total operating expenses grew 8 percent. Operating income also grew at 8 percent - in line with sales growth. Other expenses of $132.7 million, decreased by 7 percent versus 1999 (as adjusted) due primarily to income in 2000 from a license fee, gains on sale of equity investments, and other miscellaneous income.
Excluding special items in both years***, net income and earnings per share both grew by 20 percent to $491.5 million and $1.58, respectively. Reported net income and earnings per share totaled $374.3 million and $1.21, respectively.
Guidant will conduct a live webcast today, Jan. 30, at 5 p.m. (EST). The webcast of Guidant's conference call will be accessible to all investors through Guidant's website or at StreetFusion.com. The webcast will be archived on both websites for future on-demand replay.
System requirements for the webcast include Internet Explorer 5.0 (or higher) or Netscape Navigator 4.0 (or higher). Users also should have the most recent version of Windows Media Player, which can be downloaded for free. Users may experience varying levels of performance based on their connection speed, system capabilities and presence of a corporate firewall. To ensure a connection, users should go to the program five to 15 minutes before its start.
A global leader in the medical technology industry, Guidant provides innovative, minimally invasive and cost-effective products and services for the treatment of cardiovascular and vascular disease.
* As announced on Jan. 29, Guidant will focus its heart failure research and development efforts on cardiac resynchronization therapy and will not exercise its option to acquire exclusive rights to certain Impulse Dynamics experimental heart therapies. As a result, Guidant recorded a $127 million charge in the fourth quarter related to the write off of the unexercised option, including expenses. In the fourth quarter of 1999, Guidant recorded a special item of $21.9 million due to merger-related costs associated with the acquisition of CardioThoracic Systems, Inc. (CTS), which was completed on November 15, 1999.
** Cost of products sold in the fourth quarter of 1999 includes a reversal of $6.5 million of reserves for warranty expense previously recognized during 1999, and $7.7 million recognized in a prior year. This benefit was partially offset by $7.2 million in costs related to new product start-up as well as facility ramp-down expenses associated with the Intermedics and general surgery manufacturing facilities.
*** For a description of other current and prior year special items, see notes on attached financial statements.
This release contains forward-looking statements about the company's future financial results, the company's prospects and products in research and development. This information is based upon management's current expectations, but actual results may differ materially from those discussed in the forward-looking statements. Other factors affecting future results include those outlined in Exhibit 99.1 to the company's Form 10-Q filed November 2000.