-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EuPHHhMM2TfVwTRDWOZMn9cu4BVvJZxXk+K12Xp6Chh+tMe+/wz01xszfhdSR+wQ KCBoYLP4yYrqFd3ABr9lUA== 0000897101-95-000399.txt : 19951103 0000897101-95-000399.hdr.sgml : 19951103 ACCESSION NUMBER: 0000897101-95-000399 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951102 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: 95586566 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, 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 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 November 2, 1995 is 69,970,635. This Form 10-Q consists of 10 pages consecutively numbered. The Exhibit Index to this Form 10-Q is set forth on page 10. 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 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, 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 - STOCK DIVIDEND Earnings per share and share data have been adjusted throughout this report for the 50% stock dividend which will be paid on or about November 16, 1995 to shareholders of record on November 2, 1995. NOTE 3 - 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 could have been 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. During the third quarter 1995, the Company and Siemens AG resolved a dispute over Pacesetter's final net asset value and agreed to a final purchase price of $511.3 million. The following unaudited pro forma summary information presents the results of operations of the Company and Pacesetter for the nine months ended September 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. Nine Months Ending September 30, 1994 (Unaudited) Net sales $ 500.7 million Net income $ 82.9 million Earnings per share $ 1.17 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. NOTE 4 - CONTINGENCIES The Company is involved in various products liability lawsuits, claims and proceedings of a nature considered normal to its business. The Company may be subject to future uninsured claims in connection with two pacing lead models which have been the subject of the Hann case as more fully described in Item 1 of this Quarterly Report on Form 10-Q. The anticipated financial liability related to settlement of the Hann case is approximately $7 million. At September 30, 1995, the Company adjusted its purchase price allocation related to its 1994 acquistion of Pacesetter to establish a liability reserve for claims relating to the aforementioned pacing lead models. This reserve may be adjusted in the fourth quarter based on a further evaluation of potential claims. 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 1995 1994 1995 1994 Net sales $ 175,953 $62,468 $ 542,003 $195,889 Cost of sales 53,266 15,477 168,219 48,807 Gross profit 122,687 46,991 373,784 147,082 Operating expenses: Selling, general & administrative 58,354 13,720 177,707 41,647 Research & development 16,914 2,539 51,362 7,786 Total operating expenses 75,268 16,259 229,069 49,433 Operating profit 47,419 30,732 144,715 97,649 Other income (expense) (1,147) 3,518 (6,113) 10,365 Income before taxes 46,272 34,250 138,602 108,014 Income tax provision 14,345 9,761 42,967 30,784 Net income $ 31,927 $24,489 $ 95,635 $ 77,230 Earnings per share: Primary $ 0.45 $ 0.35 $ 1.35 $ 1.10 Fully diluted $ 0.45 $ 0.35 $ 1.34 $ 1.10 Dividends paid per share $ 0.00 $ 0.07 $ 0.00 $ 0.20 Shares outstanding Primary 71,428 70,224 70,927 70,068 Fully diluted 71,616 70,365 71,496 70,335 ST. JUDE MEDICAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
SEPTEMBER 30 DECEMBER 31 1995 1994 (UNAUDITED) (SEE NOTE) ASSETS Current assets: Cash and cash equivalents $ 16,387 $ 11,791 Marketable securities 135,127 125,177 Accounts receivable, less allowance (1995 - $8,483; 1994 - $5,760) 158,306 146,062 Inventories Finished goods 70,849 59,534 Work in process 29,112 21,723 Raw materials 52,438 48,750 Total inventories 152,399 130,007 Other current assets 14,177 21,045 Total current assets 476,396 434,082 Property, plant and equipment 182,055 157,017 Less accumulated depreciation (41,241) (24,852) Net property, plant and equipment 140,814 132,165 Other assets 344,796 353.651 TOTAL ASSETS $ 962,006 $ 919,898 LIABILITIES & SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 151,883 $ 112,680 Long-term debt 140,000 255,000 Contingencies 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 - 69,970,915 shares; 1994 - 69,718,623 6,997 6,972 Additional paid-in capital 31,055 25,947 Retained earnings 616,731 521,097 Cumulative translation adjustment 6,944 (2,484) Unrealized gain on available-for-sale securities 8,396 686 Total shareholders' equity 670,123 552,218 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $962,006 $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. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30 1995 1994 Operating Activities: Net income $ 95,635 $ 77,230 Depreciation and amortization 30,565 6,825 Working capital change 6,375 (8,702) Net cash provided by operating activities 132,575 75,353 Investment Activities: Purchases of property, plant and equipment (23,288) (11,931) Sales of available-for-sale securities, net 2,484 237,399 Acquisition (Note 3) 13,000 (524,300) Other investing activities (11,215) (19,470) Net cash used in investing activities (19,019) (318,302) Financing Activities: Proceeds from exercise of stock options 5,133 788 Cash dividends paid --- (13,935) Proceeds from issuance of long-term debt --- 250,000 Repayment of long-term debt (115,000) --- Net cash provided by (used in) financing activities (109,867) 236,853 Effect of currency exchange rate changes on cash 907 674 Increase (decrease) in cash and cash equivalents 4,596 (5,422) Cash and cash equivalents at beginning of year 11,791 26,987 Cash and cash equivalents at end of period $ 16,387 $ 21,565
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 third quarter and year-to-date 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 third quarter 1995 totalled $175,953, including approximately $111,000 from Pacesetter operations. Total net sales increased $113,485, or 182%, over net sales in the 1994 third quarter. For the first nine months of 1995, net sales totalled $542,003, a $346,114, or 177%, increase over the comparable period of 1994. Third quarter net sales in 1995, exclusive of the Pacesetter net sales, as compared to the third quarter of 1994 increased by over $2,500, or approximately 4%. For the first nine months, the 1995 increase over 1994 exceeded $7,400, 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. Also a favorable foreign currency translation effect due to the weaker U.S. dollar added approximately $1,000 and $4,800 to net sales in the third quarter and first nine months of 1995, respectively. Pacesetter net sales totalled approximately $111,000 for the quarter and $339,000 for the first nine months of 1995. Compared to proforma 1994 results, net sales increased approximately 10% and 11% for the quarter and first nine months, respectively. The increase principally resulted from strong domestic performance and was favorably impacted by new product introductions, competitor problems and a continuing shift toward higher price, superior performance products. GROSS PROFIT. The third quarter 1995 gross profit was $122,687, or 69.7% of net sales as compared to $46,991, or 75.2% of net sales during the comparable 1994 period. For the first nine months of 1995 and 1994, gross profit was $373,784, or 69.0% of net sales, and $147,082, or 75.1% of net sales, respectively. The gross profit margin decreased in 1995 primarily because the Pacesetter margins are 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 costs associated with the new valve manufacturing plant also decreased the gross profit margin. SELLING, GENERAL & ADMINISTRATIVE. Selling, general & administrative (SG&A) expenses increased in the third quarter 1995 to $58,354 from $13,720 in the comparable period of 1994. As a percentage of net sales, SG&A increased in 1995 to 33.2% from 22.0% in 1994. On a year-to-date basis, 1995 SG&A expenses totalled $177,707, a $136,060 increase over the $41,647 recorded during the first nine months of 1994. Pacesetter related goodwill has been included in 1995 SG&A. As a percentage of sales, Pacesetter SG&A was higher than heart valve operations because Pacesetter uses a commission based third party distributor sales force in the U.S. and international markets, except Western Europe. The Company also established a Western European distribution infrastructure as a result of the Pacesetter acquisition which increased SG&A expenses. RESEARCH AND DEVELOPMENT. Research and development (R&D) expenses were $16,914 and $2,539 for the third quarters of 1995 and 1994, respectively. For the first nine months, R&D expenses totalled $51,362 and $7,786 for 1995 and 1994, respectively. As a percentage of net sales, the first nine months R&D expense increased in 1995 to 9.5% from 4.0% in 1994. The higher spending level primarily reflects Pacesetter bradycardia, tachycardia and programmer projects. In addition, R&D expenses increased in the tissue heart valve technology area. OTHER INCOME/(EXPENSE). The $511,300 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 $2,900 in the third quarter and $10,600 for the first nine months of 1995. Interest income totalled about $1,600 in the third quarter and $4,900 in the first nine months of 1995 versus nearly $4,100 and $11,500 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 passed in 1993 and generally higher taxed income from Pacesetter operations. OUTLOOK. The Company expects further consolidation within the worldwide health care industry and continued emphasis on cost effective outcome based technological advancements. Competitive pressures, hospital 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 regulations 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 regulation will become final. No provision has been made for this proposed regulation 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 September 30, 1995, continues to be strong. Long-term debt was reduced to $140,000, a $65,000 decrease during the third quarter and a $115,000 decrease during the first nine months of 1995. The ratio of current assets to current liabilities was 3.1 to 1 at September 30, 1995. Total assets increased $2,159 during the third quarter of 1995. Cash and marketable securities increased $7,073 primarily as a result of cash flow from operations after debt repayment. Accounts receivable decreased $5,223 mainly as a result of a focused collection effort in Western Europe and a lower sales level from the previous quarter. Inventories increased $6,332 during the quarter primarily as a result of a gradual ramp-up in heart valve production in anticipation of purchasing less mechanical heart valve components from our supplier in 1996 and new product offerings. Shareholders' equity increased $45,150 during the quarter to $670,123. The increase resulted from net income of $31,927, a net unrealized gain on investments of $6,277, $1,087 associated with the exercise of stock options and the issuance of restricted shares, and a foreign currency translation adjustment of $5,859. ST. JUDE MEDICAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Dollars in thousands except per share amounts) PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS St. Jude Medical, Inc. sued Electromedics and Medtronic, Inc. in 1994 in district court in Minnesota to recover a $3 million termination fee which was due to St. Jude under an acquisition agreement between St. Jude and Electomedics when Electomedics elected to be acquired by Medtronic. The district court ruled against St. Jude but the Minnesota Court of Appeals reversed the lower court and held that St. Jude was entitled to recover the $3 million fee. In October the Minnesota Supreme Court denied Medtronic's request to review the decision of the Court of Appeals. No further appeal is possible. From 1987 to 1991 Siemens through its Pacesetter and other Affiliates ("Siemens") manufactured and sold approximately 32,000 model 1016T and 1026T pacemaker leads of which approximately 25,000 were sold in the U.S. In 1991 Siemens ceased selling these products and issued a safety alert to physicians explaining that these pacemaker leads had a higher than expected failure rate due to an inner insulation problem. The safety alert recommended monitoring steps to minimize any risk posed by the devices. The FDA treated this notice as a Class I recall. In March, 1993 Siemens was sued in federal district court in Cincinnati, Ohio. ("the Wilson case"). The suit alleged that the model 1016T leads were negligently designed and manufactured. The suit sought class action status for patients whose 1016T leads had malfunctioned up to that time. The class status was granted by the court in November 1993. When St. Jude acquired from Siemens substantially all of its worldwide cardiac rhythm management business ("Pacesetter") on October 1, 1994, the Purchase Agreement specifically provided that Siemens retain all liability for the Wilson case as well as all other litigation that was pending or threatened before October 1, 1994. The Purchase Agreement also provided that St. Jude would assume liability for other product liability claims which arose after September 30, 1994. Siemens and St. Jude were named defendants in a class action suit filed in March 1995 in Houston, Texas for alleged defects in models 1016T and 1026T pacing leads (the "Hann case"). The suit sought class action status for patients who had inner insulation failures of these leads after March 22, 1993 and who were not members of the Wilson class. Siemens and St. Jude settled the Wilson and Hann cases in November 1995. St. Jude's anticipated financial responsibility for the settlement is approximately $7.0 million. The precise number of class members, and the corresponding financial liability, could increase or decrease as the process for filing claims is completed. The Settlement Agreement has an "opt out" provision for class members and the Settlement Agreement is subject to approval by the court. St. Jude's product liability insurance carrier, Steadfast, a wholly owned subsidiary of Zurich Insurance Company ("Zurich"), has denied coverage for this case and has filed suit against St. Jude in federal district court in Minneapolis seeking rescission of the policy covering Pacesetter business retroactive to the date St. Jude acquired Pacesetter. Zurich alleges that St. Jude made material negligent misrepresentations to Zurich including failure to disclose the Wilson case in order to procure the insurance policy. St. Jude has filed an answer denying Zurich's claim and has alleged that Zurich specifically had knowledge of the Wilson case. The terms of the product liability insurance policy which Zurich is seeking to rescind provide that St. Jude would be entitled to $10 million in coverage for the 1016T and 1026T pacemaker lead claims after payment by St. Jude of a self insured retention. St. Jude is investigating whether it may have claims against any entities, in addition to Zurich, arising from this situation. 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. NOVEMBER 1, 1995 /s/ 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-31-1995 SEP-30-1995 16,387 135,127 166,789 8,483 152,399 476,396 182,055 41,241 962,006 151,883 0 6,997 0 0 663,126 962,006 542,003 542,003 168,219 168,219 0 2,803 10,640 138,602 42,967 95,635 0 0 0 95,635 1.35 1.34
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