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 March 31, 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
April 28, 1995 was 46,527,329.
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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 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 three months ended March 31,
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.
Three Months Ending
March 31, 1994
(Unaudited)
Net sales $166.2 million
Net income $ 27.6 million
Earnings per share $ .59
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.
PART I FINANCIAL INFORMATION
ST. JUDE MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED MARCH 31
1995 1994
Net sales $ 180,499 $66,685
Cost of sales 59,106 16,871
Gross profit 121,393 49,814
Operating expenses:
Selling, general & administrative 58,251 13,785
Research & development 16,028 2,690
Total operating expenses 74,279 16,475
Operating profit 47,114 33,339
Other income(expense) (2,789) 3,776
Income before taxes 44,325 37,115
Income tax provision 13,741 10,578
Net income $ 30,584 $26,537
Earnings per share:
Primary $ 0.65 $ 0.57
Fully diluted $ 0.65 $ 0.57
Dividends paid per share $ 0.00 $ 0.10
Shares outstanding
Primary 46,998 46,649
Fully diluted 47,143 46,649
See notes to condensed consolidated financial statements.
ST. JUDE MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
MARCH 31 DECEMBER 31
1995 1994
ASSETS (UNAUDITED) (SEE NOTE)
Current assets:
Cash and cash equivalents $ 16,937 $ 11,791
Marketable securities 124,489 125,177
Accounts receivable, less allowance
(1995 - $6,319; 1994 - $5,760) 156,971 146,062
Inventories
Finished goods 65,805 59,534
Work in process 23,329 21,723
Raw materials 45,017 48,750
Total inventories 134,151 130,007
Other current assets 27,566 21,045
Total current assets 460,114 434,082
Property, plant and equipment 163,903 157,017
Less accumulated depreciation (30,422) (24,852)
Net property, plant and equipment 133,481 132,165
Other assets 351,470 353,651
TOTAL ASSETS $ 945,065 $ 919,898
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 129,228 $ 112,680
Long-term debt 225,000 255,000
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 - 46,527,225 shares;
1994 - 46,479,082 4,653 4,648
Additional paid-in capital 29,840 28,271
Retained earnings 551,681 521,097
Cumulative translation adjustment 4,404 (2,484)
Unrealized gain on available-for-sale securities 259 686
Total shareholders' equity 590,837 552,218
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 945,065 $ 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)
THREE MONTHS ENDED
MARCH 31
1995 1994
Operating Activities:
Net income $ 30,584 $ 26,537
Depreciation and amortization 9,735 2,304
Working capital change 717 2,108
Net cash provided by operating activities 41,036 30,949
Investing Activities:
Purchases of property, plant and equipment (5,559) (2,855)
Sales of available-for-sale securities, net 261 27,931
Other investing activities (2,817) (60)
Net cash provided by (used in) investing activities (8,115) 25,016
Financing Activities:
Proceeds from exercise of stock options 1,574 149
Cash dividends paid -- (4,641)
Reduction of long-term debt (30,000) --
Net cash used in financing activities (28,426) (4,492)
Effect of currency exchange rate changes on cash 651 193
Increase in cash and cash equivalents 5,146 51,666
Cash and cash equivalents at beginning of year 11,791 26,987
Cash and cash equivalents at end of period $ 16,937 $ 78,653
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. Results between 1995 and 1994 are not directly
comparable because the Company's first quarter 1995 financial results include
Pacesetter's operations.
NET SALES. Net sales for the first quarter 1995 totalled $180,499, including
approximately $112,000 from Pacesetter operations. This was a $113,814, or 171%,
increase over net sales in the 1994 first quarter. Approximately 58% of the
first quarter 1995 net sales were realized in the domestic market which is
comparable to the first quarter 1994.
On a comparable business basis, first quarter net sales in 1995 as compared to
the first quarter of 1994 increased by approximately $1,700, or about 3%. This
increase was 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
$1,700 to net sales in 1995.
Pacesetter net sales increased approximately 13% over the proforma 1994 first
quarter net sales. The increase principally resulted from strong domestic
performance and was positively impacted by new product introductions, competitor
quality problems and a continuing shift toward higher price superior performance
products.
GROSS PROFIT. The consolidated gross profit margin decreased in 1995 to 67.3%
from the 74.7% recorded in the first quarter 1994. The decrease was mainly due
to the fact that Pacesetter product margins are lower than the margins generated
by 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
associated with the new heart valve component manufacturing plant also decreased
the gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative (SG&A)
expenses increased in the first quarter 1995 to $58,251 from $13,785 in the
comparable period of 1994. As a percentage of net sales, first quarter SG&A
increased to 32.3% in 1995 from 20.7% in 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 all international markets except
Western Europe. The Company also established additional 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 totalled
$16,028 in the first quarter of 1995, which was $13,338 higher than the first
quarter 1994 level. As a percentage of net sales, first quarter R&D expense
increased in 1995 to 8.9% from 4.0% in 1994. The higher spending level primarily
reflects the Pacesetter R&D and increased investments in mechanical and tissue
valve projects.
OTHER INCOME(EXPENSE). The $524,300 Pacesetter acquisition was funded by debt
and internal funds. Consequently, interest income significantly decreased and
the Company now has significant interest expense. Interest expense was
approximately $4,000 in the first quarter 1995. Interest income totalled about
$1,600 in 1995 as compared to nearly $3,600 in 1994.
INCOME TAX PROVISION. The Company's effective income tax rate was 31% in the
first quarter 1995, a 2.5 percentage point increase over the 28.5% effective tax
rate in the first quarter 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
Pacesetter income.
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 regulations
pertaining to the computation of Puerto Rican profits would, if finalized in its
current form, reduce the tax benefits the Company derives from its Puerto Rican
operations. The Company cannot predict when or if the proposed change will
become final. No provision has been made for this proposed change to IRC Section
936.
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 March 31, 1995, continues to remain
strong. Long-term debt was reduced to $225,000, a $30,000 decrease during the
quarter. The ratio of current assets to current liabilities was 3.6 to 1 at
March 31, 1995.
Total assets increased $25,167 during the first quarter of 1995. Cash and
marketable securities increased $4,458 primarily as a result of cash flow from
operations after debt repayment. Accounts receivable increased $10,909 in
conjunction with a significant increase in the first quarter net sales as
compared to the net sales in the fourth quarter. Inventories increased $4,144
during the quarter primarily as a result of new product offerings.
The $16,548 increase in current liabilities principally reflects higher accrued
income taxes most of which will be paid during the second quarter 1995.
Shareholders' equity increased $38,619 during the quarter to $590,837. The
increase resulted from net income of $30,584, a foreign currency translation
adjustment of $6,888 and $1,574 associated with the exercise of stock options
and the issuance of restricted shares less an unrealized loss, net of deferred
taxes, on investments of $427.
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,
attorney's fees, costs and expenses. The district court has
dismissed the complaint and the plaintiff has filed an appeal which
is pending.
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. RESULTS OF VOTES OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May 3, 1995.
In conjunction therewith, proxies were solicited in accordance with
Regulation 14A. The following actions were taken:
(1) William R. Miller, Kenneth G. Langone, and Gail R. Wilensky were
elected to the Board of Directors for terms ending in 1998.
Shareholders approved management's nominees to the Board of
Directors by votes as follows: 34,586,286, 34,614,171 and 34,592,964
in favor, 205,089, 177,204 and 198,411 withheld for Messrs. Miller
and Langone and Dr. Wilensky, respectively. Six other directors are
serving unexpired terms as follows: Lawrence A. Lehmkuhl, Thomas H.
Garrett III and Roger G. Stoll - through 1996; and Charles V. Owens,
Ronald A. Matricaria, and Walter L. Sembrowich - through 1997.
(2) The shareholders approved the St. Jude Medical, Inc. Management
Incentive Compensation Plan by a vote of 31,519,679 in favor of the
Plan, 2,236,666 opposed to the Plan and 541,259 abstained from
voting.
(3) The shareholders approved the reappointment of Ernst & Young LLP as
the Company's independent auditor for the current fiscal year by a
vote of 34,574,644 in favor of the reappointment, 87,087 opposed to
the reappointment and 129,444 abstained from voting.
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
27 Financial Data Schedule for SEC use.
(b) None
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.
May 5, 1995 /s/ STEPHEN L. WILSON
DATE STEPHEN L. WILSON
Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)