-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SXfKTHRnfqQrBhw8CBaV0DZvTBLUiq4Zz3K8AA78oHUHmdvEyLAYMF88LfDLeyWh WdC6O1sSirHDRj3Wu5TE4Q== 0000203077-94-000011.txt : 19941108 0000203077-94-000011.hdr.sgml : 19941108 ACCESSION NUMBER: 0000203077-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ST JUDE MEDICAL INC CENTRAL INDEX KEY: 0000203077 STANDARD INDUSTRIAL CLASSIFICATION: 3842 IRS NUMBER: 411276891 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08672 FILM NUMBER: 94557873 BUSINESS ADDRESS: STREET 1: ONE LILLEHEI PLAZA CITY: ST PAUL STATE: MN ZIP: 55117 BUSINESS PHONE: 6124832000 MAIL ADDRESS: STREET 1: ONE LILLEHEI PLAZA CITY: ST PAUL STATE: MN ZIP: 55117 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1994 Commission File Number 0-8672 ST. JUDE MEDICAL, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1276891 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) One Lillehei Plaza, St. Paul, Minnesota 55117 (Address of principal executive offices) (612) 483-2000 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO The number of shares of common stock, par value $.10 per share, outstanding at October 31, 1994 is 46,481,622. This Form 10-Q consists of 11 pages consecutively numbered. The Exhibit Index to this Form 10-Q is set forth on page 11. PART I FINANCIAL INFORMATION ST. JUDE MEDICAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1994 are not necessarily indicative of the results that may be expected for the full year ended December 31, 1994. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under this pronouncement, debt securities that the Company does not have the positive intent to hold to maturity and all marketable equity securities are classified as available-for-sale and are carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried as a separate component of shareholders' equity. The Company adopted the provisions of the new standard for investments held or acquired after January 1, 1994 and has classified all investments as available-for-sale. Previously, the Company had classified its investments as available-for-sale and carried them at amortized cost. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle; however, the effect of this change to reflect the net unrealized holding gains on securities classified as available-for-sale was to increase shareholders' equity at December 31, 1993 by $1,248,000 (net of $764,000 of current deferred income taxes). A net realized loss of $416,000 was recorded on sales of available-for-sale securities during the third quarter and first nine months of 1994. The net adjustment to unrealized holding gains (losses) on available-for-sale securities included as a separate component of shareholders' equity was a gain of $924,000 (net of $567,000 of current deferred income taxes) for the third quarter of 1994 and a loss of $644,000 (net of $395,000 of current deferred income taxes) for the first nine months of 1994. NOTE 3 - BUSINESS COMBINATION Effective September 30, 1994, the Company acquired substantially all the assets of the worldwide cardiac rhythm management business of Siemens AG (the "Business"), pursuant to two asset purchase agreements. The Business consisted of the tangible and intangible assets, properties, rights and goodwill. The Company paid $524.3 million for the Business pending final adjustments based on the audited net book value of the net assets transferred to the Company. The acquisition was funded by a combination of cash ($274.3 million) and debt ($250.0 million). Since the acquisition was effective at the close of the last business day of the quarter and the purchase price allocation was not final, the accompanying financial statements reflect the estimated allocation of the purchase price. The acquisition was accounted for as a purchase. Since the purchase price and the allocation of the purchase price were not final, an estimate of the effect of the acquisition was included in the September 30, 1994 balance sheet. The components of the allocation were: accounts receivable ($87,000), inventories ($84,000), property plant and equipment ($84,000), goodwill ($334,300) and accounts payable and accrued expenses ($65,000). The purchase price and the allocation of same is expected to be finalized in the fourth quarter. NOTE 4 - CONTINGENCY Due to the January, 1994 California earthquake, earthquake insurance is currently difficult to procure, extremely costly, and restrictive in terms of coverage. For these reasons, the Company has not procurred earthquake and related business interruption insurance for its operations located in Los Angeles County, California. Although certain losses resulting from an earthquake are covered under other insurance policies owned by the Company, the absence of earthquake insurance represents a potential exposure for the Company. Any uninsured loss could have an adverse impact on the Company. PART I FINANCIAL INFORMATION ST. JUDE MEDICAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) (Unaudited)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 1994 1993 1994 1993 Net sales $62,468 $58,946 $195,889 $194,044 Cost of sales 15,477 13,998 48,807 47,254 ------- ------- -------- -------- Gross profit 46,991 44,948 147,082 146,790 Operating expenses: Selling, general & administrative 13,720 11,601 41,647 37,035 Research & development 2,539 2,778 7,786 8,319 ------- ------- ------- ------- Total operating expenses 16,259 14,379 49,433 45,354 ------- ------- ------- ------- Operating profit 30,732 30,569 97,649 101,436 Other income 3,518 3,542 10,365 10,570 ------- ------- -------- -------- Income before taxes 34,250 34,111 108,014 112,006 Income tax provision 9,761 8,139 30,784 28,002 ------- ------ ------- ------- Net income $24,489 $25,972 $77,230 $84,004 ======= ======= ======== ======= Earnings per share: Primary $ 0.52 $ 0.55 $ 1.65 $ 1.77 ======== ======== ======== ======== Fully diluted $ 0.52 $ 0.55 $ 1.65 $ 1.77 ======== ======== ======== ======== Dividends paid per share $ 0.10 $ 0.10 $ 0.30 $ 0.30 ======== ======== ======== ======== Shares outstanding Primary 46,816 47,114 46,712 47,407 Fully diluted 46,910 47,114 46,890 47,433
PART I FINANCIAL INFORMATION (continued) ST. JUDE MEDICAL, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
September 30 December 31 1994 1993 ASSETS (Unaudited) (Note) ------------ ----------- Current assets: Cash and cash equivalents $ 21,565 $ 26,987 Marketable securities 103,961 342,004 Accounts receivable, less allowance (1994 - $1,984; 1993 - $1,856) 135,408 40,159 Inventories Finished goods 100,481 15,414 Work in process 2,380 2,677 Raw materials 15,180 14,422 --------- ---------- 118,041 32,513 Other current assets 10,534 8,247 --------- ---------- Total current assets 389,509 449,910 Property, plant and equipment 160,403 65,962 Less accumulated depreciation (21,110) (18,777) --------- ---------- Net property, plant and equipment 139,293 47,185 Other assets 380,648 29,722 --------- ---------- TOTAL ASSETS $ 909,450 $ 526,817 ========= ========== LIABILITIES & SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 108,223 $ 40,912 Long term debt 250,000 -- Deferred income taxes 1,664 1,664 Shareholders' equity: Preferred stock, par value $1.00 per share - 25,000,000 shares authorized; no shares issued -- -- Common stock, par value $.10 per share - 100,000,000 shares authorized; issued and outstanding 1994 - 46,481,122 shares; 1993 - 46,414,261 4,648 4,641 Additional paid-in capital 28,192 27,411 Retained earnings 519,093 455,798 Cumulative translation adjustment (1,726) (3,609) Unrealized loss on available-for-sale securities (644) -- --------- ---------- Total shareholders' equity 549,563 484,241 --------- ---------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 909,450 $ 526,817 ========= ==========
NOTE: The balance sheet at December 31, 1993 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. PART I FINANCIAL INFORMATION (continued) ST. JUDE MEDICAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30 1994 1993 ---------- ---------- Operating Activities: Net income $ 77,230 $ 84,004 Depreciation and amortization 6,825 6,533 Working capital change (8,702) (1,104) ---------- ---------- Net cash provided by operating activities 75,353 89,453 ---------- ---------- Investment Activities: Purchases of property, plant and equipment (11,931) (13,356) Sales (purchases) of available-for-sale securities, net 237,399 (56,466) Acquisition (Note 3) (524,300) -- Other investing activities (19,470) (13,983) ---------- ---------- Net cash used in investing activities (318,302) (83,805) ---------- ---------- Financing Activities: Proceeds from exercise of stock options 788 1,688 Cash dividends paid (13,935) (14,144) Common stock repurchased -- (31,762) Proceeds from issuance of long-term debt 250,000 -- ---------- ---------- Net cash provided by (used in) financing activities 236,853 (44,218) ---------- ---------- Effect of currency exchange rate changes on cash 674 (227) ---------- ---------- Decrease in cash and cash equivalents (5,422) (38,797) Cash and cash equivalents at beginning of year 26,987 68,346 ---------- ---------- Cash and cash equivalents at end of period $ 21,565 $ 29,549 ========== ==========
ST. JUDE MEDICAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Dollars in thousands except per share amounts) RESULTS OF OPERATIONS: NET SALES. Net sales totalled $62,468 and $58,946 in the third quarter 1994 and 1993, respectively; a 6.0% increase. For the first nine months of 1994, net sales totalled $195,889, a $1,845 or 1.0% increase from net sales recorded in the comparable period of 1993. Most of the net sales were derived from the sale of mechanical heart valves. The increase in net sales for the quarter as compared to 1993 was primarily attributable to mechanical heart valve unit sales improvements in all markets except Western Europe which experienced a small decline in unit sales. In addition, foreign currency translation increased net sales by approximately $870, or 1.5%. During the first nine months of 1994, net sales increased primarily because of mechanical heart valve domestic price increases and market penetration in certain developing countries. Foreign currency translation decreased net sales by approximately $575, or .3% GROSS PROFIT. The third quarter 1994 gross profit was $46,991, or 75.2% of net sales, as compared to $44,948, or 76.3% of net sales, during the comparable 1993 period. For the first nine months of 1994 and 1993, gross profit was $147,082, or 75.1% of net sales, and $146,790, or 75.6% of net sales, respectively. The decreases in gross margin for the quarter and the nine month period were principally associated with a price increase on purchased mechanical heart valve components, costs relating to the Company's new mechanical heart valve component manufacturing facility, a lower worldwide average selling price attributable to a higher percentage of distributor based sales partially offset by price increases and certain manufacturing efficiencies. SELLING, GENERAL AND ADMINISTRATIVE. For the third quarter 1994, selling, general and administrative (SG&A) expenses were $13,720, a $2,119, or 18.3% increase over the $11,601 recorded in the third quarter 1993. On a year-to-date basis, 1994 SG&A expenses totalled $41,647, a $4,612, or 12.5% increase over the $37,035 recorded in 1993. The quarterly and nine month increases were primarily associated with the expansion of the Company's sales forces in response to increased worldwide competition, higher marketing expenditures attributable to product line extensions and new products and costs relating to obtaining ISO 9000 certification. RESEARCH AND DEVELOPMENT. Research and development (R&D) expenses were $2,539 and $2,778 for the third quarters of 1994 and 1993, respectively. For the first nine months, R&D expenses totalled $7,786 and $8,319 for 1994 and 1993, respectively. The decrease from 1993 for both the quarter and the first nine months was attributable to reduced funding of the Hancock Jaffe Laboratories joint venture due to the completion of the development phase of the new SJM X-CellTM tissue heart valve. Also, lower expense levels were incurred in connection with the development of an advanced intra-aortic balloon pump as that product moved closer to completion. OTHER INCOME. Other income for the third quarter 1994 decreased $24 to $3,518 as compared to the third quarter 1993. For the first nine months, other income totalled $10,365 and $10,570 for 1994 and 1993, respectively. The quarter and nine month decreases resulted from lower investment rates of return as longer term investments were reinvested for short terms in anticipation of the acquisition, unrealized losses on foreign exchange contracts due to the decline in the value of the U.S. dollar, and increased joint venture costs and partnership losses. INCOME TAX PROVISION. The Company's 1994 effective income tax rate was 28.5% as compared to 23.9% and 25.0% in 1993 for the third quarter and first nine months, respectively. The increase was principally attributable to reduced tax benefits available from the Company's Puerto Rican operations as a result of The Omnibus Budget Tax Reconciliation Act of 1993. In addition, last year's third quarter tax provision was favorably affected by a one half of one percentage point reduction in the Company's full year expected effective tax rate for 1993. NET INCOME. Net income for the third quarter 1994 of $24,489 decreased $1,483, or 5.7%, from the $25,972 reported in the third quarter 1993. Earnings per share decreased to $.52 from $.55 between the two quarters. The Company's 1994 income before taxes of $34,250 increased slightly from last year's level. For the first nine months, net income was $77,230 and $84,004 for 1994 and 1993, respectively. Earnings per share in 1994 on a year-to-date basis decreased 6.8% to $1.65 from $1.77 in the first nine months of 1993. OUTLOOK. The Company's core mechanical heart valve business remains strong; however, domestic as well as international competitive pressures, hospital consolidations and healthcare reform on a worldwide scale may have the effect of further reducing pricing flexibility and unit sales growth. An Internal Revenue Service proposed change to IRC Section 936 regulations pertaining to the computation of Puerto Rican profits would, if enacted, further reduce the tax benefits the Company derives from its Puerto Rican operations. The Company cannot predict when or if the proposed regulation will become final. No provision has been made for this proposed regulation change. During the third quarter, the Company acquired the worldwide cardiac rhythm management business of Siemens AG for approximately $525,000. The acquisition was effective September 30, 1994. For the year ended September 30, 1993, net sales of this business approximated $360,000. The Company will continue to actively seek other diversification opportunities in the form of acquisitions, joint ventures, partnerships and investments in emerging technology companies, as well as through internal research and development. The Company cannot predict the size or timing of such diversification activities. FINANCIAL CONDITION: The acquisition of the Siemens cardiac rhythm management business (Pacesetter) significantly changed the Company's capital structure. The Pacesetter acquisition cost of $524,300 was funded by a combination of cash ($274,300) and bank debt ($250,000). The financial condition of the Company at September 30, 1994, continues to be strong. Cash and marketable securities totalled $125,526 at September 30, 1994, a decrease of $277,848 from the June 30, 1994 balance of $403,374. The decrease principally resulted from the Pacesetter acquisition. The ratio of current assets to current liabilities was 3.6 to 1 at September 30, 1994. Total assets increased $382,633 during the first nine months of 1994 principally due to the Pacesetter acquisition. In the third quarter the Company made an equity investment of $12,000 in EndoVascular Technologies, Inc., a medical device manufacturer targeting the repair of abdominal aortic aneurysms. Also in the third quarter, the Company made an additional equity investment of $4,070 in InControl, Inc. a medical device manufacturer addressing atrial fibrillation. As previously announced, the Company's Board of Directors elected to discontinue the Company's $.10 per share quarterly cash dividend effective with the September 30, 1994 closing of the Pacesetter acquisition. Shareholder's equity increased $65,322 during the first nine months of 1994 to $549,563. The increase resulted from net income of $77,230, a foreign currency translation adjustment of $1,883 and $788 associated with the exercise of stock options and the issuance of restricted stock less cash dividends of $13,935 and a net unrealized loss on investments of $644. PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is a named defendant in a purported class action captioned Weisburgh, et al. v. St. Jude Medical, Inc., et al. filed July 2, 1992, in the United States District Court for the District of Minnesota and later amended. The second amended complaint also names as defendants certain officers and directors alleged to control the Company. The plaintiff purports to represent a class consisting of all persons who purchased common stock of the Company during the period from December 17, 1991, through July 2, 1992. The second amended complaint alleges that the defendants deceived the investing public regarding the Company's finances, financial condition and present and future prospects and induced the plaintiff class to purchase the Company's common stock during the period prior to July 2, 1992, at inflated prices. The second amended complaint asserts claims for federal securities fraud, common law fraud and negligent misrepresentation. The second amended complaint seeks damages (including punitive damages) in an unspecified amount, attorneys' fees, costs and expenses. On March 2, 1993, the Company and the other defendants moved to dismiss all claims for failure to state a claim for relief and failure to plead fraud with particularity. In its Order dated May 28, 1993, the court denied the defendant's motion at that time but directed the plaintiff to file a second amended complaint with more particularized allegations of fraud. The plaintiff has filed a second amended complaint and on June 28, 1993, the Company and the other defendants moved to dismiss the second amended complaint for failure to state a claim for relief and failure to plead fraud with particularity. The plaintiff has moved for a class certification. Both motions are under advisement. The Company believes that the second amended complaint is without merit and intends to pursue a vigorous defense of the action. The Company is unaware of any other pending legal proceedings which it regards as likely to have a material adverse effect on its business. Item 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS None Item 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES Not Applicable Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None Item 5. OTHER INFORMATION None Item 6.EXHIBITS and REPORTS ON FORM 8-K The exhibit index can be found on page 11. There were no Reports on Form 8-K filed during the quarter. (a) Exhibits Exhibit Exhibit Number 2 Not applicable 4 Amended and Restated Rights Agreement dated as of June 26, 1990 between the Company and Norwest Bank Minneapolis, N.A., as Rights Agent including the Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock is incorporated by reference to Exhibit 1 of the Registrant's Form 8 Amendment 2 to Form 8-A dated July 6, 1990. 10 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27 Financial Data Schedule (filed in electronic format for SEC use only). (b) Form 8K Item 2. Acquisition or Disposition of Assets On October 14, 1994, the registrant filed an 8-K dated September 30, 1994, in respect of the acquisition of the worldwide cardiac rhythm management business of Siemens, AG, pursuant to two asset purchase agreements. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. ST. JUDE MEDICAL, INC. 10/31/94 /STEPHEN L. WILSON/ DATE STEPHEN L. WILSON Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2
5 1,000 9-MOS DEC-31-1994 SEP-30-1994 21,565 103,961 137,392 1,984 118,041 389,509 160,403 21,110 909,450 108,223 0 4,648 0 0 544,915 909,450 195,889 195,889 48,807 48,807 0 0 0 108,014 30,784 77,230 0 0 0 77,230 1.65 1.65
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