Recall Costs Hamper Guidant

Second-quarter revenue rose 4% from a year ago.
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said its second-quarter revenue rose 4% from a year ago, but the medical device company's net income fell, partly as a result of costs for recent product recalls.

The Indianapolis-based company earned $107.3 million, or 32 cents a share, in the quarter vs. $126.5 million, or 39 cents a share, a year earlier.

Guidant didn't say much regarding the planned merger with

Johnson & Johnson

(JNJ) - Get Report

, but Ronald Dollens, president and CEO, indicated that the company continues working with J&J management and is "making timely progress toward the closing of the merger in the current quarter, including the previously completed shareholder approval, ongoing integration planning and education around the product field actions."

Guidant's second quarter had a number of items, including a pretax charge of $113 million, or 26 cents a share after tax, associated with device recalls. The company also recorded a pretax charge of $34 million, or 8 cents a share after tax, for the accelerated vesting of restricted stock awards resulting from shareholder approval of the merger with J&J.

Additionally, Guidant had in-process research-and-development charges of $10 million, or 3 cents a share, in the quarter, compared with costs of $73 million, or 15 cents a share, in the year-ago period.

Revenue rose to $974.1 million from $938.8 million last year. Guidant shares were up $1.66 to $69.36 Thursday.

Worldwide implantable defibrillator sales increased 3% to $470 million but took a $70 million hit after the company recalled a group of cardiac resynchronization therapy defibrillators in June. Earlier this month the company issued a warning about some of its older pacemakers, citing incidences of device failure.

Some observers had speculated that J&J might try to rework the terms of its deal with Guidant after the first device problems arose, but neither company has suggested that such a scenario has been discussed. The agreement values Guidant at $25.4 billion, or $76 a share.

This week J&J said it should resolve the acquisition by the end of this quarter, but it couldn't speculate on exactly how Guidant's product recall matters would be concluded.

"The actions taken by the company over the last several weeks reflect our commitment to provide timely information to physicians and patients about our devices," Guidant said in its earnings release. "Our products continue to demonstrate extremely high performance and reliability while saving and improving the lives of millions of patients. Guidant is working closely with FDA and will continue to work to meet and exceed the expectations of physicians, patients and the FDA."

Guidant's worldwide pacemaker sales fell 5% to $174 million, and coronary stent sales fell 2% to $118 million compared with the prior year. However, worldwide sales of cardiac surgery and peripheral devices, including carotid and biliary systems, grew 43% to $97 million.