0000203077-95-000005.txt : 19950815 0000203077-95-000005.hdr.sgml : 19950815 ACCESSION NUMBER: 0000203077-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ST JUDE MEDICAL INC CENTRAL INDEX KEY: 0000203077 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [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: 95563358 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 June 30, 1995 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 of incorporation or organization) Identification No.) 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 ___ NO _X_ The number of shares of common stock, par value $.10 per share, outstanding at July 28, 1995 was 46,632,415. This Form 10-Q consists of 9 pages consecutively numbered. The Exhibit Index to this Form 10-Q is set forth on page 9. PART I FINANCIAL INFORMATION ST. JUDE MEDICAL, INC. NOTES TO CONDENSED 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 of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 1995 are not necessarily indicative of the results that may be expected for the full year ended December 31, 1995. 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, 1994. NOTE 2 - ACQUISITIONS Effective September 30, 1994, the Company acquired from Siemens AG substantially all of its worldwide cardiac rhythm management operations ("Pacesetter") for a price not to exceed $531.3 million. The initial purchase price of $511.3 million can be adjusted upward by a maximum of $20 million or downward based upon the change in the net asset value of Pacesetter from September 30, 1993, to September 30, 1994. The Company and Siemens AG currently disagree about the final adjustment to the purchase price and are following the procedures in the purchase agreements to resolve their differences. The following unaudited pro forma summary information presents the results of operations of the Company and Pacesetter for the six months ended June 30, 1994, as if the acquisition had occurred at the beginning of 1993, after giving effect to certain adjustments including amortization of goodwill, increased interest expense, decreased interest income and the related income tax effects. Six Months Ending June 30, 1994 (Unaudited) Net sales $336.9 million Net income $ 56.3 million Earnings per share $ 1.20 These pro forma results are not necessarily indicative of the results that would have occurred had the acquisition actually taken place at the beginning of 1993, or of the expected future results of operations. ST. JUDE MEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share amounts) (Unaudited) THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 1995 1994 1995 1994 Net sales $ 185,551 $66,736 $ 366,050 $133,421 Cost of sales 55,847 16,459 114,953 33,330 Gross profit 129,704 50,277 251,097 100,091 Selling, general & administrative 61,102 14,142 119,353 27,927 Research & development 18,420 2,557 34,448 5,247 Operating profit 50,182 33,578 97,296 66,917 Other income (expense) (2,177) 3,071 (4,966) 6,847 Income before taxes 48,005 36,649 92,330 73,764 Income tax provision 14,881 10,445 28,622 21,023 Net income $ 33,124 $26,204 $ 63,708 $ 52,741 Earnings per share: Primary $ .70 $ .56 $ 1.35 $ 1.13 Fully diluted $ .70 $ .56 $ 1.35 $ 1.13 Dividends paid per share $ .00 $ .10 $ .00 $ .20 Shares outstanding Primary 47,239 46,671 47,118 46,660 Fully diluted 47,373 46,790 47,348 46,777 ST. JUDE MEDICAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) JUNE 30 DECEMBER 31 1995 1994 ASSETS (UNAUDITED) (SEE NOTE) Current assets: Cash and cash equivalents $ 16,953 $ 11,791 Marketable securities 127,488 125,177 Accounts receivable, less allowance (1995 - $7,130; 1994 - $5,760) 163,529 146,062 Inventories Finished goods 73,272 59,534 Work in process 23,168 21,723 Raw materials 49,627 48,750 Total inventories 146,067 130,007 Other current assets 20,576 21,045 Total current assets 474,613 434,082 Property, plant and equipment 171,793 157,017 Less accumulated depreciation (35,470) (24,852) Net property, plant and equipment 136,323 132,165 Other assets 348,911 353,651 TOTAL ASSETS $ 959,847 $ 919,898 LIABILITIES & SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 129,874 $ 112,680 Long-term debt 205,000 255,000 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 1995 - 46,618,377 shares; 1994 - 46,479,082 4,662 4,648 Additional paid-in capital 32,302 28,271 Retained earnings 584,805 521,097 Cumulative translation adjustment 1,085 (2,484) Unrealized gain on available-for-sale securities 2,119 686 Total shareholders' equity 624,973 552,218 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 959,847 $ 919,898 NOTE: The balance sheet at December 31, 1994 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. See notes to condensed consolidated financial statements. ST. JUDE MEDICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30 1995 1994 Operating Activities: Net income $ 63,708 $ 52,741 Depreciation and amortization 20,178 4,408 Working capital change (15,671) (7,574) Net cash provided by operating activities 68,215 49,575 Investing Activities: Purchases of property, plant and equipment (13,590) (5,144) Sales of available-for-sale securities, net -- 45,855 Other investing activities (4,329) (83) Net cash provided by (used in) investing activities (17,919) 40,628 Financing Activities: Proceeds from exercise of stock options 4,045 699 Cash dividends paid -- (9,287) Repayment of long-term debt (50,000) -- Net cash used in financing activities (45,955) (8,588) Effect of currency exchange rate changes on cash 821 191 Increase in cash and cash equivalents 5,162 81,806 Cash and cash equivalents at beginning of year 11,791 26,987 Cash and cash equivalents at end of period $ 16,953 $ 108,793
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: INTRODUCTION: Effective September 30, 1994, St. Jude Medical Inc. acquired from Siemens AG substantially all the worldwide assets of its cardiac rhythm management operations ("Pacesetter"). The acquisition significantly expanded the Company's product offerings. The Company's second quarter and first half 1995 financial results include Pacesetter's operations. Results between 1995 and 1994 are not directly comparable due to the Pacesetter acquisition. NET SALES. Net sales for the second quarter 1995 totalled $185,551, including approximately $116,000 from Pacesetter operations. This was a $118,815, or 178%, increase over net sales in the 1994 second quarter. For the first six months of 1995, net sales totalled $366,050, a $232,629, or 174% increase over the comparable period of 1994. On a comparable business basis, second quarter net sales in 1995 as compared to the second quarter of 1994 increased by over $3,200, or approximately 5%. For the first six months, the 1995 increase over 1994 exceeded $4,900, or about 4%. These increases were mainly attributable to higher mechanical heart valve net sales, particularly in emerging markets. In addition, tissue heart valve and cardiac assist device net sales increased over 1994 levels. On a comparable business basis, a favorable foreign currency translation effect in 1995 as compared to 1994 due to the weaker U.S. dollar added approximately $2,000 and $3,700 to net sales in the second quarter and first six months of 1995, respectively. Pacesetter net sales totalled approximately $116,000 for the quarter and $228,000 for the first six months. Compared to proforma 1994 results, Pacesetter net sales increased approximately 11% and 12% for the quarter and first half, respectively. The increase principally resulted from a strong domestic performance which was favorably impacted by new product introductions, competitor problems and a continuing shift toward superior performance higher price products. GROSS PROFIT. The second quarter 1995 gross profit was $129,704, or 69.9% of net sales, as compared to $50,277, or 75.3% of net sales, during the comparable 1994 period. For the first six months of 1995 and 1994, gross profit was $251,097, or 68.6% of net sales, and $100,091, or 75.0% of net sales, respectively. The gross profit margin decreased in 1995 primarily because the Pacesetter margins, although quite good, were lower than the margins of the Company's heart valve operations. In addition, acquired Pacesetter fixed assets were recorded at fair market value resulting in higher depreciation charges. Higher mechanical heart valve component costs and sales into lower margin emerging markets together with the commencement of depreciation of start-up costs associated with the new valve manufacturing plant also decreased the gross profit margin in 1995. SELLING, GENERAL & ADMINISTRATIVE. Selling, general & administrative (SG&A) expenses increased in the second quarter 1995 to $61,102 from $14,142 in the comparable period of 1994. As a percentage of net sales, second quarter SG&A expenses increased in 1995 to 32.9% from 21.2% in 1994. On a year-to-date basis, 1995 SG&A expenses totalled $119,353, a $91,426 increase over the $27,927 recorded in the first half of 1994. Significant Pacesetter related goodwill has been included in 1995 SG&A expenses. As a percentage of net sales, Pacesetter SG&A expenses were higher than heart valve operations because Pacesetter uses a commission based third party distributor sales force in the U.S. and all international markets except Western Europe. The Company also established a Western European distribution infrastructure as a result of the Pacesetter acquisition which has increased SG&A expenses. RESEARCH AND DEVELOPMENT. Research and development (R&D) expenses were $18,420 and $2,557 for the second quarters of 1995 and 1994, respectively. For the first six months, R&D expenses totalled $34,448 and $5,247 for 1995 and 1994, respectively. As a percentage of net sales, first half R&D expenses increased in 1995 to 9.4% from 3.9% in 1994. The higher spending level reflects the addition of Pacesetter's high level of R&D expense which results from continued enhancements in pacemaker technology and processes. Pacesetter has major ongoing R&D programs in the bradycardia and tachycardia areas, as well as development of a new programmer. In addition, R&D expenses increased in the area of tissue heart valve technology. OTHER INCOME (EXPENSE). The Pacesetter acquisition was funded by debt and internal funds. Consequently, interest income significantly decreased and the Company began to incur interest expense. Interest expense was approximately $3,700 in the second quarter and $7,700 for the first half of 1995. Interest income totalled approximately $1,700 in the second quarter and $3,300 in the first half of 1995 versus nearly $3,900 and $7,500 in the comparable periods of 1994. INCOME TAX PROVISION. The Company's 1995 effective tax rate was 31%, a 2.5 percentage point increase over the 28.5% effective tax rate in 1994. The higher effective tax rate was due to reduced tax exempt interest income as a result of the Pacesetter acquisition, lower tax benefits derived from the Company's Puerto Rican operations as a result of Internal Revenue Code (IRC) changes made in 1993 and generally higher taxed income at Pacesetter. OUTLOOK. The Company expects further consolidation within the worldwide health care industry, advances in medical technology necessitating larger R& D expenditures and continued emphasis on cost effective clinical outcomes. Competitive pressures, hospital and other provider consolidations and various health care reform agendas may negatively impact product sales and restrict pricing flexibility. An Internal Revenue Service proposed change to IRC Section 936 pertaining to the computation of Puerto Rican profits would, if finalized in its current form, reduce the benefits the Company derives from its Puerto Rican operations. The Company cannot predict when or if the proposed change to the regulation will become final. No provision has been made for this proposed change. The Company continues to seek further diversification opportunities in the form of acquisitions, joint ventures, partnerships and investments in emerging technology companies as well as through internal R&D. The size, timing and financial impact of such efforts cannot be predicted. FINANCIAL CONDITION: The financial condition of the Company at June 30, 1995, continues to remain strong. Long-term debt was reduced to $205,000, a $20,000 decrease during the second quarter and $50,000 decrease during the first six months of 1995. The ratio of current assets to current liabilities was 3.7 to 1 at June 30, 1995. Total assets increased $14,782 during the second quarter of 1995. Cash and marketable securities increased $3,015 primarily as a result of cash flow from operations after debt repayment. Accounts receivable increased $6,558 in conjunction with an increase in the second quarter net sales as compared to net sales in the first quarter and more sales into emerging markets that have longer payment cycles. Inventories increased $11,916 during the quarter primarily as a result of anticipated summer plant closings and significant new product offerings. Shareholders' equity increased $34,136 during the quarter to $624,973. The increase resulted from net income of $33,124, a net unrealized gain on available-for-sale securities of $1,860 and $2,471 associated with the exercise of stock options and the issuance of restricted shares, less a foreign currency translation adjustment of $3,319. PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company was 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. The district court has dismissed the complaint and the U.S. Court of Appeals has affirmed the dismissal. 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 (a) Exhibits Exhibit Number Exhibit 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 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. /s/ Stephen L. Wilson DATE August 14, 1995 STEPHEN L. WILSON Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2
5 1,000 6-MOS DEC-31-1995 JUN-30-1995 16,953 127,488 170,659 7,130 146,067 474,613 163,903 35,470 959,847 129,874 0 4,662 0 0 620,311 959,847 366,050 366,050 114,953 114,953 0 1,450 7,707 92,330 28,622 63,708 0 0 0 63,708 1.35 1.35