SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K ANNUAL REPORT
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 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 office)
(612) 483-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK ($.10 PAR VALUE) PREFERRED STOCK PURCHASE RIGHTS
(Title of class) (Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, or will not be contained, to
the best of the Registrant's knowledge, in definitive proxy information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
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 aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $3.0 billion at March 7, 1997, when the
closing sale price of such stock, as reported on the New York Stock Exchange,
was $38 1/8.
The number of shares outstanding of the Registrant's Common Stock, $.10
par value, as of March 7, 1997, was 81,027,862 shares.
Portions of the Annual Report to Shareholders for the year ended
December 31, 1996, are incorporated by reference in Parts I, II and IV. Portions
of the Proxy Statement dated March 24, 1997, are incorporated by reference in
Part III.
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The exhibit index set is forth on pages 12, 13, and 14.
ST. JUDE MEDICAL, INC.
1996 10-K
PART I
Item 1. BUSINESS
GENERAL
St. Jude Medical, Inc. ("St. Jude" or the "Company") designs,
manufactures and markets medical devices and provides services for the
cardiovascular segment of the medical device industry. The Company's products
are distributed in more than 100 countries worldwide through a combination of
direct sales personnel, independent manufacturers' representatives and
distribution organizations. The main markets for the Company's products are the
United States, Western Europe and Japan.
Effective September 30, 1994, St. Jude 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 and provided a platform for potential further diversification
activities within the cardiac rhythm management market.
Effective May 31, 1996, the Company acquired Daig Corporation ("Daig"),
a Minnesota based manufacturer of specialized cardiovascular devices for the
electrophysiology and interventional cardiology markets. Daig's competencies are
in catheter development and manufacturing and certain of its electrophysiology
products complement other St. Jude Medical cardiac rhythm management ("CRM")
product offerings.
Effective September 23, 1996, the Company acquired Biocor(R) Industria
E Pesquisas Ltd., a Brazilian manufacturer of tissue heart valves.
Effective November 29, 1996, St. Jude Medical's Pacesetter subsidiary
acquired substantially all of the assets of Telectronics Pacing Systems, Inc.
("Telectronics"), a pacemaker company, and Medtel, a distribution company in the
Asia-Pacific region, both wholly owned subsidiaries of Pacific Dunlop, Ltd. In
addition to state-of-the-art pacing technologies, Telectronics enhances the
Company's CRM operations by adding important intellectual property assets and an
experienced sales organization.
On October 23, 1996, the Company and Ventritex, Inc. ("Ventritex")
signed a definitive agreement for a tax-free, stock-for-stock merger. The merger
is subject to regulatory approvals and Ventritex shareholder approval. In
January 1997, Ventritex reported three deaths related to a component failure in
its Cadence(R) model V110 ICD device. Ventritex received FDA approval to
reprogram or replace approximately 5,600 devices which utilize that component to
prevent further incidents related to component failures. The Company is
performing further investigation of the component failure and its impact on the
Ventritex business prior to concluding the merger. There can be no assurance
given as to if and when the merger will be concluded.
St. Jude provides products and services for a single industry segment,
that of cardiovascular medical devices. Substantially all of its operations and
assets are attributable to cardiovascular medical devices. The Company currently
operates through three global business units. The Heart Valve Division is
responsible for the Company's heart valve disease management products including
mechanical and tissue heart valves and annuloplasty rings. The Pacesetter
Division is responsible for the Company's cardiac rhythm management products
including bradycardia pulse generators, leads and programmers and tachycardia
research and development. The Daig Division provides a broad array of product
offerings for interventional cardiology, including percutaneous angiography
catheters, introducers used in catheter procedures, guidewires and guiding
sheaths. Daig also participates in the electrophysiology market with catheters
for diagnostic mapping of the heart, ablation of malfunctioning heart tissue and
temporary cardiac pacing catheters. In addition, the Company maintains
geographically based sales and marketing organizations which are responsible for
marketing, sales and distribution of the Company's and third party products in
Europe, Africa, the Middle East, Japan, Canada, Latin America and the
Asia-Pacific region.
Typically, the Company's net sales are somewhat stronger in the first
and second quarters and weaker in the third quarter. This results from patient
tendency to defer, if possible, cardiac procedures during the summer months and
from the seasonality of the domestic and Western European markets where summer
vacation schedules normally result in fewer surgical procedures. Manufacturers'
representatives randomly place large orders which can distort the net sales
pattern noted above. In addition, new product introductions, acquisitions, and
regulatory approvals can modify the expected net sales pattern.
In 1996, approximately 62% of net sales were derived from cardiac
rhythm management products, approximately 33% from heart valve products and the
balance from interventional cardiology products. Approximately 57% of the
Company's 1996 net sales were in the U.S. market, down from 59% in 1995.
CARDIAC RHYTHM MANAGEMENT
The Pacesetter Division is headquartered in Sylmar, California and has
manufacturing facilities in Sylmar; Miami Lakes, Florida; Denver, Colorado;
Sweden and Scotland. Pacesetter pulse generators and pacing leads treat patients
with hearts that beat too slowly or irregularly; a condition known as
bradycardia. Various models of bradycardia pulse generators and leads are
produced by Pacesetter. Pulse generators can sense and produce impulses in both
the upper and lower chambers of the heart, adapt to changes in heart rate and
can be non-invasively programmed by the physician to adjust sensing, electrical
pulse intensity, duration, rate and other characteristics.
The pulse generator contains a lithium battery power source and
electronic circuitry. It generates pacing pulses and monitors the heart's
activity to sense abnormalities requiring correction. It is most often implanted
pectorally, just below the collarbone. The leads are insulated wires that carry
the pulses to the heart and information from the heart back to the pacemaker. A
pacemaker uses electrical currents equivalent to those in a healthy heart.
Pacesetter's product line includes a new pacing system platform called
the Trilogy(R) series. The series was an outgrowth of the highly successful
Synchrony(R) platform and was designed with the philosophy of cardiac
optimization. Trilogy(R) has an ovoid shape, doubles memory, adds new diagnostic
capabilities and in some versions has an automaticity feature.
Microny(TM), a single chamber pacemaker, which was the first pacemaker
in the world to incorporate AutoCapture(TM), has been introduced in
international markets and is in clinical trials in the U.S. The
AutoCapture(TM)algorithm is capable of adjusting the pacemaker's output to
provide the minimal amount of electrical impulse necessary to stimulate the
heart and provides an appropriate safety margin on a beat by beat basis.
Microny(TM) is the world's smallest pacemaker weighing only about 13 grams. The
sensor is an accelerometer, a "ball in a cage" sensor which has excellent
sensitivity to the intensity of the patient's body movement in determining the
proper pacing rate.
The Regency(TM) family of single chamber pacemakers incorporates the
AutoCapture(TM) feature and several advanced diagnostic capabilities. Pacesetter
has released the Regency(TM) pacemaker in most international markets and
commenced U.S. clinical trials in 1996.
Telectronics products which are marketed through the Telectronics sales
force include the Meta(TM) 1256 DDDR pulse generator and other pulse generator
products. The Meta(TM) device includes Telectronics' Minute Ventilation(TM)
biosensor feature and third generation Automatic Mode Switching (AMS)(TM).
HEART VALVES
The St. Jude Medical Division is headquartered in St. Paul, Minnesota
and has manufacturing facilities in St. Paul, Puerto Rico, Canada and Brazil.
Heart valve replacement or repair may be necessary because the natural heart
valve has deteriorated due to congenital defects or disease. Heart valves
facilitate the one-way flow of blood in the heart and prevent significant
backflow of blood into the heart and between the heart's chambers.
St. Jude offers both mechanical and tissue replacement heart valves and
valve repair products. The St. Jude Medical(R) mechanical heart valve is the
most widely implanted valve in the world with over 725,000 valves implanted to
date. Internationally the Company markets the Toronto SPV(R) stentless tissue
valve, the world's leading stentless tissue valve, and SJM(R) Biocor(TM) tissue
valves. The Toronto SPV(R) commenced domestic clinical trials in 1994. Under an
agreement with Heartport, Inc. ("Heartport"), St. Jude's heart valve prostheses
will be used in combination with Heartport's proprietary Port-AccessTM
technology to perform less invasive heart valve surgery to repair or replace
diseased heart valves. In early 1997, Heartport received FDA authorization to
commence U.S. marketing of its Port-Access(TM) mitral valve repair and
replacement system.
Annuloplasty rings are prosthetic devices used to repair diseased or
damaged mitral heart valves. The Company has executed a license agreement with
Professor Jacques Seguin to manufacture and market an advanced semi-rigid
annuloplasty ring. This SJM(R) Seguin annuloplasty ring, cleared by the FDA for
U.S. release during first quarter 1997, can be used with conventional surgery
and Heartport's Port-Access(TM) technology.
St. Jude has also entered into several other relationships to provide
additional products and services for heart valve disease management, including:
1) An agreement with LifeNet Transplant Services which enables St. Jude to
assist in the marketing of human donated allograft heart valves.
2) An alliance with DuPont Pharma to jointly develop educational programs
on using anticoagulant drugs with mechanical heart valves.
3) An alliance with Boehringer Mannheim Corporation which provides valve
patients the opportunity to use a home test kit for measuring
anticoagulation levels.
ELECTROPHYSIOLOGY AND INTERVENTIONAL CARDIOLOGY
Daig is headquartered and has its manufacturing operations in
Minnetonka, Minnesota. Daig designs, manufactures and markets specialized
disposable cardiovascular devices for the electrophysiology and interventional
cardiology markets, including percutaneous catheter introducers, diagnostic
guidewires, electrophysiology catheters and bipolar temporary pacing catheters
(used with external pacemakers).
Percutaneous (through the skin) catheter introducers are used to create
passageways for cardiovascular catheters from outside the human body through the
skin into a vein, artery or other location inside the body. Daig's percutaneous
catheter introducer products consist primarily of peel- away sheaths, sheaths
with and without hemostasis valves, dilators, guidewires, repositioning sleeves,
obturators and needles. All of these products are offered in a variety of sizes
and packaging configurations.
Diagnostic guidewires are used in conjunction with percutaneous
catheter introducers to aid in the introduction of intravascular catheters.
Daig's diagnostic guidewires are available in multiple lengths and incorporate a
proprietary surface finish for lasting lubricity.
Electrophysiology catheters are placed into the human body
percutaneously to aid in the diagnosis and treatment of cardiac arrhythmias
(abnormal heart rhythms). Between two and five electrophysiology catheters are
generally used in each electrophysiology procedure. Daig's electrophysiology
catheters are available in multiple configurations.
Bipolar temporary pacing catheters are inserted percutaneously for
temporary use (less than one hour to a maximum of one week) with external
pacemakers to provide patient stabilization prior to implantation of a permanent
pacemaker, following a heart attack, or during surgical procedures. Daig
produces and markets several designs of bipolar temporary pacing catheters.
In addition to these current products, Daig continually explores the
possibility for new products and for new or expanded applications for existing
products. Daig has received marketing clearance for a diagnostic angiography
catheter and plans to launch this product commercially during 1997. Daig is also
involved in various research and development efforts, including two related to
its Livewire(TM) steerable electrophysiology catheter. One of these efforts aims
to expand the approved diagnostic labeling of the Livewire(TM) steerable
electrophysiology catheter to include certain ablation therapies. The other,
which is being conducted pursuant to an FDA Investigational Device Exemption
("IDE"), involves a clinical trial to gather data in support of the use of the
Livewire(TM) steerable electrophysiology catheter in combination with
specialized guiding introducers as a cure for atrial fibrillation (a heart
rhythm disorder).
SUPPLIERS
Under an agreement with CarboMedics, Inc. (CMI), which covers the
supply of pyrolytic carbon heart valve components for the mechanical heart
valve, the Company must purchase a minimum of 20% of its needs through 1998 at
negotiated prices. If CMI is unable or fails to perform under the agreement, the
license permits the Company to self-manufacture its component requirements
during the supply interruption. The agreement can be extended for additional one
year terms after 1998 at the Company's option and prices the Company would pay
in 1999 and beyond would be adjusted annually by a producer price index based
formula established in the agreement.
The Company purchases raw materials and other items from numerous
suppliers for use in its products. The Company maintains sizable inventories of
up to three years of its projected requirements for certain materials, some of
which are available only from a single vendor. The Company has been advised from
time to time that certain of these vendors may terminate sales of products to
customers that manufacture implantable medical devices in an effort to reduce
their potential products liability exposure. Some of these vendors have modified
their positions and have indicated a willingness to either temporarily continue
to provide product until such time as an alternative vendor or product can be
qualified or to reconsider the supply relationship. While the Company believes
that alternative sources of raw materials are available and that there is
sufficient lead time in which to qualify such other sources, any supply
interruption could have a material adverse effect on the Company's ability to
manufacture its products.
COMPETITION
Within the medical device industry, competitors range from small
start-up companies to companies with significant resources. The Company's
customers consider many factors when choosing supplier partners including
product reliability, clinical outcomes, product availability, inventory
consignment, price and product services provided by the manufacturer. Market
share can shift as a result of technological innovation, product recalls and
product safety alerts. This emphasizes the need to provide the highest quality
products and services. St. Jude expects the competition to continue to increase
by using tactics such as consigned inventory, bundled product sales and reduced
pricing.
The Company is the world's leading manufacturer and supplier of
mechanical heart valves. There are two other principal and several other smaller
mechanical heart valve manufacturers. The Company competes against two principal
and a large number of other smaller tissue heart valve manufacturers.
Pacesetter has traditionally been a technological leader in the
bradycardia pacemaker market. Worldwide there are six primary manufacturers and
suppliers of bradycardia pacemakers, including the Company. One other company
and Pacesetter account for well over half of the worldwide bradycardia pacemaker
net sales. The Company has strong market share positions in all major developed
markets.
The market areas Daig focuses on are the cardiac catherization
laboratories and the electrophysiology laboratories in hospitals throughout the
world. These are growing markets with numerous competitive companies.
The cardiovascular segment of the medical device market is a dynamic
market currently undergoing significant change due to cost of care
considerations, regulatory reform, industry consolidation and customer
consolidation. The ability to provide cost effective clinical outcomes is
becoming increasingly more important for medical device manufacturers.
MARKETING
The Company's products are sold in over 100 countries throughout the
world. No distributor organization or single customer accounted for more than
10% of 1996 net sales.
In the United States, St. Jude sells directly to hospitals through an
employee based sales organization for its heart valve and catheter products and
a combination of independent manufacturers' representatives and an employee
based sales organization for its pacemaker products. In Western Europe, the
Company has an employee based sales organization selling in 14 countries.
Throughout the rest of the world the Company uses a combination of independent
distributor and direct sales organizations.
Payment terms worldwide are consistent with local practice. Orders are
shipped as they are received and, therefore, no material back orders exist.
RESEARCH AND DEVELOPMENT
The Company is focused on the development of new products and
improvements to existing products. In addition, research and development expense
reflects the Company's efforts to obtain FDA approval of certain products and
processes and to maintain the highest quality standards of existing products.
The Company's research and development expenses, exclusive of purchased research
and development, were $74,841,000 (9.3% of net sales), $72,305,000 (9.5%) and
$23,471,000 (6.0%) in 1996, 1995 and 1994, respectively.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are
subject to regulation by the FDA and, in some instances, by state and foreign
governmental authorities. Under the Federal Food, Drug and Cosmetic Act (the
"Act"), and regulations thereunder, manufacturers of medical devices must comply
with certain policies and procedures that regulate the composition, labeling,
testing, manufacturing, packaging and distribution of medical devices. Medical
devices are subject to different levels of government approval requirements, the
most comprehensive of which requires the completion of an FDA approved clinical
evaluation program and submission and approval of a pre-market approval ("PMA")
application before a device may be commercially marketed. The Company's
mechanical and tissue heart valves, certain pacemakers and leads and certain
electrophysiology catheter applications are subject to this level of approval or
as a supplement to a PMA approval. Other pacemakers and leads, annuloplasty ring
products and other electrophysiology and interventional cardiology products are
currently marketed under the 510(k) pre-market notification procedure of the
Act.
In addition, the FDA may require testing and surveillance programs to
monitor the effect of approved products which have been commercialized and it
has the power to prevent or limit further marketing of a product based on the
results of these post-marketing programs. The FDA also conducts inspections
prior to approval of a PMA to determine compliance with current good
manufacturing practice regulations and may, at any time, conduct periodic
inspections to determine compliance with both good manufacturing practice
regulations and/or current medical device reporting regulations. If the FDA were
to conclude that St. Jude Medical was not in compliance with applicable laws or
regulations, it could institute proceedings to detain or seize products, issue a
recall, impose operating restrictions, assess civil penalties against employees
and recommend criminal prosecution to the Department of Justice. Furthermore,
the FDA could proceed to ban, or request recall, repair, replacement or refund
of the cost of, any device manufactured or distributed.
The FDA also regulates record keeping for medical devices and reviews
hospital and manufacturers' required reports of adverse experiences to identify
potential problems with FDA authorized devices. Aggressive regulatory action may
be taken due to adverse experience reports. FDA device tracking and post-market
surveillance requirements are expected to increase future regulatory compliance
costs.
Diagnostic-related groups ("DRG") reimbursement schedules regulate the
amount the United States government, through the Health Care Financing
Administration ("HCFA"), will reimburse hospitals and doctors for the inpatient
care of persons covered by Medicare. In response to the U.S. government budget
deficit and rising Medicare and Medicaid costs, several legislative proposals
have been advanced which would restrict future funding increases for these
programs. While the Company has been unaware of significant domestic price
resistance directly as a result of DRG reimbursement policies, changes in
current DRG reimbursement levels could have an adverse effect on its domestic
pricing flexibility.
St. Jude business outside the United States is subject to medical
device laws in individual foreign countries. These laws range from extensive
device approval requirements in some countries for all or some of the Company's
products to requests for data or certifications in other countries. Generally,
regulatory requirements are increasing in these countries. In the European
Economic Union ("EEU"), the regulatory systems have been harmonized and approval
to market in EEU countries (the "CE mark") can be obtained through one agency.
In addition, government funding of medical procedures is limited and in certain
instances being reduced.
The Office of the Inspector General (the "OIG") of the United States
Department of Health and Human Services ("HHS") is currently conducting an
investigation regarding possible hospital submissions of improper claims to
Medicare/Medicaid programs for reimbursement for procedures using cardiovascular
medical devices that were not approved for marketing by the FDA at the time of
use. Beginning in June 1994, approximately 130 hospitals received subpoenas from
HHS seeking information with respect to reimbursement for procedures using
cardiovascular medical devices (including certain products manufactured by the
Company) that were subject to investigational exemptions or that may not have
been approved for marketing by the FDA at the time of use. The subpoenas also
sought information regarding various types of remuneration, including payments,
gifts, stock and stock options, received by the hospital or its employees from
manufacturers of medical devices. Civil and criminal sanctions may be imposed
against any person participating in an improper claim for reimbursement under
Medicare/Medicaid. The OIG's investigation and any related change in
reimbursement practices may discourage hospitals from participating in clinical
trials or from including Medicare and Medicaid patients in clinical trials,
which could lead to increased costs in the development of new products. St. Jude
believes it is too early to predict the possible outcome of this matter or when
it will be resolved. There can be no assurance that the OIG's investigation or
any changes in third-party payors' reimbursement practices will not materially
adversely affect the medical device industry in general or the Company in
particular. In 1995, HCFA, part of HHS, issued a regulation clarifying that
certain medical devices subject to investigational requirements under the Act
may qualify for reimbursement. In April 1996, a Federal District Court in
California declared the Health Care Financing Administration's governmental
guidelines, denying reimbursement for investigational devices, to be invalid.
The government has appealed this decision, and the impact on the OIG
investigation is uncertain. There can be no assurance that the OIG's
investigation or any resulting or related changes in third-party payors'
reimbursement practices will not materially adversely affect the medical device
industry in general or St. Jude Medical in particular.
In 1994 the predecessor organization to Pacesetter entered a consent
decree which settled a lawsuit brought by the United States in U.S. District
Court for the District of New Jersey. The consent decree which remains in effect
indefinitely requires that Pacesetter comply with the FDA's good manufacturing
practice regulations and identifies several specific provisions of those
regulations. The consent decree provides for FDA inspections and that Pacesetter
is obligated to pay certain costs of the inspections.
In May 1995 Telectronics and its President entered into a consent
decree with the FDA. The consent decree provided that Telectronics would not
manufacture or ship products for distribution in the United States until
Telectronics established to the satisfaction of the FDA that its manufacturing
facility in Florida operates in conformity with the FDA's good manufacturing
practice regulations. Telectronics has satisfied its obligations in this regard
and was released from these restrictions of the consent decree in June 1996. The
consent decree which remains in effect indefinitely requires that Telectronics
comply with the FDA's good manufacturing practice regulations and identifies
several specific provisions of those regulations. The consent decree provides
for FDA inspections and that Telectronics is obligated to pay certain costs of
the inspections.
In 1994 a state prosecutor in Germany began an investigation of
allegations of corruption in connection with the sale of heart valves. As part
of that investigation, the prosecutor seized documents from St. Jude's offices
in Germany as well as documents from certain competitors' offices. The
investigation is continuing and has been broadened to include other medical
devices. Subsequently, the United States Securities and Exchange Commission
issued a formal order of private investigation covering sales practices of St.
Jude and other manufacturers in Germany.
PATENTS AND LICENSES
The Company's policy is to protect the intellectual property rights in
its work on medical devices. Where appropriate, St. Jude applies for United
States and foreign patents. In those instances where the Company has acquired
technology from third parties, it has sought to obtain rights of ownership to
the technology through the acquisition of underlying patents or licenses.
While the Company believes design, development, regulatory and
marketing aspects of the medical device business represent the principal
barriers to entry into such business, it also recognizes that its patents and
license rights may make it more difficult for its competitors to market products
similar to those produced by the Company. St. Jude can give no assurance that
any of its patent rights, whether issued, subject to license or in process, will
not be circumvented or invalidated. Further, there are numerous existing and
pending patents on medical products and biomaterials. There can be no assurance
that the Company's existing or planned products do not or will not infringe such
rights or that others will not claim such infringement. The Company's principal
patent covering its mechanical heart valve will expire in the United States in
July 1998. No assurance can be given that the Company will be able to prevent
competitors from challenging the Company's patents or entering markets currently
served by the Company.
INSURANCE
The medical device industry has historically been subject to
significant products liability claims. Such claims could be asserted against the
Company in the future for events not known to management at this time.
Management has adopted risk management practices, including products liability
insurance coverage, which management believes are prudent.
The Company's former products liability insurance carrier is currently
seeking to rescind its coverage of Pacesetter products for the period October 1,
1994, through December 31, 1995. Should the carrier prevail, the Company would
be self-insured for Pacesetter claims made during that period. St. Jude cannot
predict the outcome of the dispute. See Item 3 "Legal Proceedings".
California earthquake insurance is currently difficult to procure,
extremely costly, and restrictive in terms of coverage. The Company's earthquake
and related business interruption insurance for its operations located in Los
Angeles County, California does provide for limited coverage above a significant
self-insured retention. There are several factors that preclude the Company from
determining the effect an earthquake may have on its business. These factors
include, but are not limited to, the severity and location of the earthquake,
the extent of any damage to the Company's manufacturing facilities, the impact
of such an earthquake on the Company's California workforce and the
infrastructure of the surrounding communities, and the extent, if any, of damage
to the Company's inventory and work in process. While the Company's exposure to
significant losses occasioned by a California earthquake would be partially
mitigated by its ability to manufacture certain of the Pacesetter products at
its Swedish manufacturing facility, any such losses could have a material
adverse effect on the Company, the duration of which cannot be reasonably
predicted. The Company is currently engaged in the expansion of manufacturing
capabilities at its Swedish facility and has constructed a pacemaker component
manufacturing facility in Arizona. These facilities would further mitigate the
adverse impact of a California earthquake.
EMPLOYEES
As of December 31, 1996, the Company had 3,620 full-time employees. It
has never experienced a work stoppage as a result of labor disputes and none of
its employees are represented by a labor organization, with the exception of the
Company's Swedish employees and certain employees in France.
INDUSTRY SEGMENT AND INTERNATIONAL OPERATIONS
The medical products and service industry is the single industry
segment in which the Company operates. The Company's domestic and foreign net
sales, operating profit and identifiable assets, and its export sales to
unaffiliated third parties are described in Note 8 to the Consolidated Financial
Statements on page 37 of the 1996 Annual Report to Shareholders and are
incorporated herein by reference.
The Company's foreign business is subject to such special risks as
exchange controls, currency devaluation, dividend restrictions, the imposition
or increase of import or export duties and surtaxes, and international credit or
financial problems. Since its international operations require the Company to
hold assets in foreign countries denominated in local currencies, many assets
are dependent for their U.S. dollar valuation on the values of a number of
foreign currencies in relation to the U.S. dollar. The Company may from time to
time enter into purchase and sales contracts in the forward markets for various
foreign currencies with the objective of protecting U.S. dollar values of assets
and commitments denominated in foreign currencies.
Item 2. PROPERTIES
St. Jude Medical's principal executive offices are owned and are
located in St. Paul, Minnesota. Manufacturing facilities are located in
California, Colorado, Minnesota, Florida, Canada, Puerto Rico, Scotland and
Sweden. Approximately 61%, or 243,000 square feet, of the total manufacturing
space is owned by the Company and the balance is leased.
The Company also maintains sales and administrative offices inside the
United States at 13 locations in 8 states and outside the United States at 37
locations in 20 countries. With the exception of one location, all of these
locations are leased.
In management's opinion, all building and machinery and equipment are
in good condition and suitable for their purposes and are maintained on a basis
consistent with sound operations.
Item 3. LEGAL PROCEEDINGS
GUIDANT LITIGATION
On November 26, 1996, Guidant Corporation ("Guidant"), a competitor of
Pacesetter and Ventritex, CPI (a wholly owned subsidiary of Guidant), Guidant
Sales Corporation (a wholly owned subsidiary of Guidant, "GSC"), and Eli Lilly
and Company, (the former owner of CPI, "Lilly"), filed a lawsuit against St.
Jude Medical, Pacesetter, Inc. ("Pacesetter"), Ventritex, Inc. ("Ventritex") and
certain members of the Telectronics Group in State Superior Court in Marion
County, Indiana (the "Telectronics Action"). The lawsuit alleges, among other
things, that, pursuant to an agreement entered into in 1993, CPI and Lilly
granted Ventritex certain intellectual property licenses relating to cardiac
stimulation devices, and that such licenses will terminate upon consummation of
the proposed merger of Ventritex and Pacesetter (the "Merger"). The lawsuit
further alleges that, pursuant to an agreement entered into in 1994 (the
"Telectronics Agreement"), CPI and Lilly granted the Telectronics Group certain
non-transferable intellectual property licenses relating to cardiac stimulation
devices (the "CPI/Telectronics License"). The lawsuit seeks declaratory and
injunctive relief to prevent and invalidate the transfer to Pacesetter of the
intellectual property rights covered by the CPI/Telectronics License pursuant to
Pacesetter's acquisition of Telectronics (the "Telectronics Acquisition") and
the application of such license rights to the manufacture and sale by Pacesetter
of Ventritex's products following the consummation of the Merger. On December
17, 1996, St. Jude Medical, Pacesetter, Ventritex and the Telectronics Group
removed the lawsuit to the United States District Court for the Southern
District of Indiana, and filed a motion to dismiss the complaint or, in the
alternative, to stay proceedings pending arbitration of the dispute pursuant to
the arbitration provisions of the Telectronics Agreement.
CPI, GSC and Lilly simultaneously filed suit against St. Jude Medical,
Pacesetter, Ventritex and others in the United States District Court for the
Southern District of Indiana seeking (i) a declaratory judgment that continued
manufacture, use or sale by Ventritex of cardiac stimulation devices of the type
currently manufactured and sold by Ventritex will, upon consummation of the
Merger, be unlicensed and constitute an infringement of patent rights owned by
CPI and Lilly, (ii) to enjoin the manufacture or sale by St. Jude Medical,
Pacesetter or Ventritex of cardiac stimulation devices of the type currently
manufactured by Ventritex from and after consummation of the Merger and (iii)
certain damages and costs. On December 19, 1996, St. Jude Medical, Pacesetter
and Ventritex filed a motion to dismiss the complaint or, in the alternative, to
stay proceedings pending resolution of the Telectronics Action or arbitration.
St. Jude Medical believes that the foregoing complaints contain a
number of significant factual inaccuracies concerning the Telectronics
Acquisition and the terms and effects of the various intellectual property
license agreements referred to in such complaints. St Jude Medical believes that
the allegations set forth in the complaints are without merit, and St. Jude
Medical intends to defend the actions vigorously. On December 24, 1996, the
Telectronics Group and Pacesetter filed a lawsuit against Guidant, CPI, GSC and
Lilly (the "Defendants") in the United States District Court for the District of
Minnesota seeking (i) a declaratory judgment that the Defendants' claims, as
reflected in the Telectronics Action, are subject to arbitration pursuant to the
arbitration provisions of the Telectronics Agreement, (ii) an order that the
Defendants arbitrate their claims against the Telectronics Group and Pacesetter
in accordance with the arbitration provisions of the Telectronics Agreement,
(iii) to enjoin the Defendants preliminarily and permanently from litigating
their dispute with the Telectronics Group and Pacesetter in any other forum and
(iv) certain costs. The Court ruled against the Company and held that the
Telectronics Agreement is not subject to arbitration.
OTHER LITIGATION AND PROCEEDINGS
From 1987 to 1991, Siemens AG 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
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. Class action status was granted by the court in
September 1993.
When St. Jude acquired from Siemens substantially all of its worldwide
cardiac rhythm management business ("Pacesetter") on September 30, 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 products 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
pacemaker 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. Management currently estimates the
Company's share of the settlement to be approximately $5 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. Apart from
this class action settlement, additional claims could be made or lawsuits
brought by patients with these leads whose leads fail at a later date or whose
leads fail for reasons outside the class definition.
St. Jude's products 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 products 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,
and has brought suit against its former insurance broker, Johnson & Higgins.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 4A. EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION*
- ---- --- ---------
Ronald A. Matricaria 54 Chairman (1995), President and
Chief Executive Officer (1993)
Patrick P. Fourteau 49 President, Pacesetter (1996)
Terry L. Shepherd 44 President, St. Jude Medical
Division (1994) and President,
International (1995)
Daniel J. Starks 42 Chief Executive Officer, Daig
(1996)
John P. Berdusco 60 Vice President, Administration
(1993)
Peter L. Gove 49 Vice President, Corporate
Relations (1994)
Kevin T. O'Malley, Esq. 45 Vice President and General
Counsel (1994)
Stephen L. Wilson 44 Vice President, Finance and
Chief Financial Officer (1990)
* Dates in brackets indicate period during which the named executive officers
began serving in such capacity. Executive officers serve at the pleasure of the
Board of Directors and are elected annually for one year terms.
Mr. Matricaria's business experience is set forth in the Company's
definitive Proxy Statement dated March 24, 1997 under the Section "Election of
Directors." The information is incorporated herein by reference.
Mr. Fourteau joined the Company in 1995 as President of St. Jude
Medical Europe. He was appointed President of the Pacesetter Division in May
1996. Prior to joining the Company, he was employed by Eli Lilly and Co. for 19
years in various positions including his last position of vice president of
pharmaceutical operations for Lilly International.
Mr. Shepherd joined the Company in 1994 as President of the St. Jude
Medical Division. Prior to joining St. Jude, Mr. Shepherd was President and CEO
of Hybritech, Inc. where he had been employed for 3 years. Prior to that, Mr.
Shepherd held various management positions at Cardiac Pacemakers, Inc. (CPI)
where he worked for 15 years. Hybritech and CPI were both wholly owned
subsidiaries of Eli Lilly & Company.
Mr. Stark's business experience is set forth in the Company's
definitive Proxy Statement dated March 24, 1997 under the section "Election of
Directors." The information is incorporated herein by reference.
Mr. Berdusco joined the Company in 1993 as Vice President,
Administration. Prior to joining the Company, he was Executive Director
Corporate Facilities Planning, Manufacturing Strategy Development and Sourcing
for Eli Lilly & Company. From 1962 to 1993, Mr. Berdusco held various management
positions with Eli Lilly & Company in both domestic and international
operations.
Mr. Gove joined the Company in 1994 as Vice President, Corporate
Relations. Prior to joining the Company, Mr. Gove was Vice President, Marketing
and Communications of Control Data Systems, Inc., a computer services company,
from 1991 to 1994. From 1981 to 1990, Mr. Gove held various executive positions
with Control Data Corporation. From 1970 to 1981, Mr. Gove held various
management positions with the State of Minnesota and the U.S. Government.
Mr. O'Malley joined the Company in 1994 as Vice President and General
Counsel. Prior to joining St. Jude, Mr. O'Malley was employed by Eli Lilly and
Co. for 15 years in various positions including his last position of General
Counsel of the Medical Device and Diagnostics Division.
Mr. Wilson joined the Company in 1990 as Vice President, Finance and
Chief Financial Officer. Prior to joining the Company, Mr. Wilson was Vice
President and Controller of the Foxboro Company, a process automation company,
where he had been employed for five years. Prior to that, Mr. Wilson was
employed by Brown & Sharpe Manufacturing Company, a metrology products and
machine tools company, and previously was with Coopers & Lybrand.
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information set forth under the captions "Supplemental Market Price
Data" and "Dividends" on page 40 of the Company's 1996 Annual Report to
Shareholders is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Summary of
Selected Financial Data" on page 39 of the Company's 1996 Annual Report to
Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion
and Analysis of Results of Operations and Financial Condition" on pages 21
through 26 of the Company's 1996 Annual Report to Shareholders is incorporated
herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and
Report of Independent Auditors set forth on pages 27 through 38 of the Company's
1996 Annual Report to Shareholders are incorporated herein by reference:
Consolidated Statements of Income - Years ended December 31, 1996, 1995
and 1994
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity - Years ended December
31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information set forth under the caption "Election of Directors" in
the Company's definitive Proxy Statement dated March 24, 1997, is incorporated
herein by reference. Information on executive officers is set forth in Part I,
Item 4A hereto.
Item 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation and
Other Information" and "Election of Directors" in the Company's definitive Proxy
Statement dated March 24, 1997, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" and "Election of Directors" in the
Company's definitive Proxy Statement dated March 24, 1997, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Election of Directors" in
the Company's definitive Proxy Statement dated March 24, 1997, is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) List of documents filed as part of this Report
(1) FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company and
Report of Independent Auditors as set forth on pages 27 through 38
of the Company's 1996 Annual Report to Shareholders are
incorporated herein by reference:
Consolidated Statements of Income - Years ended December 31,
1996, 1995 and 1994
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule is filed as part of
this Form 10-K Annual Report:
Schedule Page
Number Description Number
------ ----------- ------
II Valuation and Qualifying Accounts 17
The report of the Company's Independent Auditors with respect to
the above-listed financial statements and financial statement
schedule appears on page 16 of this Report.
All other financial statements and schedules not listed have been
omitted because the required information is included in the
consolidated financial statements or the notes thereto, or is not
applicable.
(3) EXHIBITS
Exhibit Index
2.1 Agreement and Plan of Merger dated January 29, 1996
related to the Daig acquisition is incorporated by reference to
Schedule 13D filed February 13, 1996.
2.2 Asset Purchase Agreement dated September 24, 1996
related to the Telectronics purchase is incorporated by
reference to Form 8-K dated November 29, 1996.
2.3 Agreement and Plan of Merger dated October 23, 1996
related to the Ventritex merger. #
3.1 Articles of Incorporation are incorporated by reference to
Exhibit 3(a) of the Company's Form 8 filed on August 20,
1987, amending the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1987.
3.2 Amendment to Articles of Incorporation dated September
5, 1996. #
3.3 Bylaws are incorporated by reference to Exhibit 3B of the
Company's Form S-3 Registration Statement dated
September 25, 1986 (Commission File No. 33-8308).
4.1 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 Company's Form 8 Amendment 2 to Form 8-A dated
July 6, 1990.
10.1 Employment letter dated as of March 9, 1993, between the
Company and Ronald A. Matricaria is incorporated by
reference to Exhibit 10.1 of the Company's Form 10-K
Annual Report for the year ended December 31, 1993.*
10.2 Employment letter dated as of November 8, 1996, from
the Company to Ronald A. Matricaria.* #
10.3 Supply Contract dated April 17, 1990, between the
Company and CarboMedics, Inc. (portions of this exhibit
have been deleted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2) is incorporated by
reference to the Company's Form 8 filed on April 17, 1990
amending the Company's Form 10-K Annual Report for the year
ended December 31, 1989.
10.4 Form of Indemnification Agreement that the Company has
entered into with officers and directors. Such agreement
recites the provisions of Minnesota Statutes Section 302A.521
and the Company's Bylaw provisions (which are substantially
identical to the Statute) and is incorporated by reference to
Exhibit 10(d) of the Company's Form 10-K Annual Report for the
year ended December 31, 1986.*
10.5 Form of Employment Agreement that the Company has
entered into with officers relating to severance matters in
connection with a change in control is incorporated by
reference to Exhibit 10(f) of the Company's Form 10-K Annual
Report for the year ended December 31, 1987.*
10.6 Retirement Plan for members of the Board of Directors as
amended on March 15, 1995, is incorporated by reference
to Exhibit 10.6 of the Company's Form 10-K Annual
Report for the year ended December 31, 1994.*
10.7 Management Savings Plan dated February 1, 1995, is
incorporated by reference to Exhibit 10.7 of the
Company's Form 10-K Annual Report for the year ended
December 31, 1994.*
10.8 The St. Jude Medical, Inc. 1992 Employee Stock Purchase
Savings Plan is incorporated by reference to the
Company's Form S-8 Registration Statement dated June
10, 1992, (Commission File No. 33-48502).
10.9 1989 Restricted Stock Plan is incorporated by reference to
the Company's Form S-8 Registration Statement dated
June 6, 1989 (Commission File No. 33-29085).*
10.10 The St. Jude Medical, Inc. 1991 Stock Plan is incorporated
by reference to the Company's Form S-8 Registration
Statement dated June 28, 1991 (Commission File No. 33-
41459).*
10.11 The St. Jude Medical, Inc. 1994 Stock Option Plan is
incorporated by reference to the Company's Form S-8
Registration Statement dated July 1, 1994 (Commission
File No. 33-54435).*
10.12 The Management Incentive Compensation Plan is
incorporated by reference to Appendix A of the
Company's definitive Proxy Statement dated March 27,
1995.*
10.13 Assumption by the Company of the Daig Corporation
Non-Qualified Stock Option Agreement dated March 1,
1995, incorporated by reference to the Company's Form S-
8 Registration Statement dated May 31, 1996
(Commission File No. 333-4935).*
11 Computation of Earnings Per Share #
13 1996 Annual Report to Shareholders. Except for those
portions of such report expressly incorporated by reference
in this Form 10-K Annual Report, the Annual Report to
Shareholders is not deemed to be "filed" with the
Securities and Exchange Commission. #
21 Subsidiaries of the Company #
23 Consent of Independent Auditors #
27 Financial Data Schedule #
- -----------------------------
* Management contract or compensatory plan or arrangement.
# Filed as a part of this Form 10-K Annual Report.
(b) Reports on Form 8-K during the quarter ended December 31, 1996
Form 8-K dated October 22, 1996
Item 5. Other Events
Announcement of definitive agreements to acquire 1)
substantially all the cardiac rhythm management assets
of Telectronics Pacing Systems, Inc. and 2) Medtel, both
from Pacific Dunlop, Ltd.; and settle certain legal and
patent disputes with Intermedics Inc. Separately,
announcement of a definitive agreement for the merger of
Ventritex, Inc. with the Company's Pacesetter
subsidiary.
Form 8-K dated November 29, 1996
Item 2. Acquisition or disposition of assets
Effective November 29, 1996, St. Jude completed the
acquisition from Telectronics Pacing Systems, Inc. of
substantially all of its cardiac rhythm management
assets and the acquisition of Medtel from Pacific
Dunlop.
Item 7. Exhibits
Form 8-K dated December 6, 1996
Item 5. Other Events
Presentation of supplemental financial statements,
supplemental management's discussion and analysis of
financial condition and results of operations, and other
information that give effect to the May 31, 1996,
acquisition of Daig Corporation.
Item 7. Financial Statements and Exhibits
(c) Exhibits: Reference is made to Item 14(a)(3).
(d) Schedules: Reference is made to Item 14(a)(2).
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ST. JUDE MEDICAL, INC.
Date: March 27, 1997 By /s/ Ronald A. Matricaria
-------------------------------------------
Ronald A. Matricaria
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Stephen L. Wilson
-------------------------------------------
Stephen L. Wilson
Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ Ronald A. Matricaria Director 3/27/97 /s/ Charles V. Owens, Jr. Director 3/27/97
- ---------------------------------- ---------------------------------
Ronald A. Matricaria Charles V. Owens, Jr.
/s/ Paul J. Chiapparone Director 3/27/97 /s/ Walter L. Sembrowich Director 3/27/97
- ---------------------------------- ---------------------------------
Paul J. Chiapparone Walter L. Sembrowich
/s/ Thomas H. Garrett III Director 3/27/97 /s/ Daniel J. Starks Director 3/27/97
- ---------------------------------- ---------------------------------
Thomas H. Garrett III Daniel J. Starks
/s/ Kenneth G. Langone Director 3/27/97 /s/ Roger G. Stoll Director 3/27/97
- ---------------------------------- ---------------------------------
Kenneth G. Langone Roger G. Stoll
/s/ William R. Miller Director 3/27/97 /s/ Gail R. Wilensky Director 3/27/97
- ---------------------------------- ---------------------------------
William R. Miller Gail R. Wilensky
Report of Independent Auditors
We have audited the consolidated financial statements of St. Jude Medical, Inc.
as of December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, and have issued our report thereon dated February 5,
1997. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 5, 1997
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL D. COL E.
- ----------------------------------------- -------------------- -------------------- ---------- --------------
Additions Charged to
Balance at Beginning -------------------- Balance at End
Description of Period Expense Other Deductions of Period
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
Allowance for doubtful accounts(3) $9,361 $ 650 $ 15(5) $2,348(1) $7,678
Products liability claims reserve(4) 8558 ---- ---- 254(2) 8304
Year ended December 31, 1995
Allowance for doubtful accounts(3) $5,782 $2,510 $1,256(5) $ 187(1) $9,361
Products liability claims reserve(4) 1,500 ---- 8,000(5) 942(2) 8,558
Year ended December 31, 1994
Allowance for doubtful accounts(3) 1873 715 3,675(5) 481(1) 5782
Products liability claims reserve(4) 401 1,181 ---- 82(2) 1,500
(1) Reserve or uncollectible accounts written off, net of recoveries.
(2) Settlements paid.
(3) Deducted from accounts receivable on the balance sheet.
(4) Included in other accrued expenses on the balance sheet.
(5) Balance assumed through acquisitions.