SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994 Commission File Number 0-8672
ST. JUDE MEDICAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1276891
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Lillehei Plaza, St. Paul, Minnesota 55117
(Address of principal executive offices)
(612) 483-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The number of shares of common stock, par value $.10 per share, outstanding at
July 29, 1994 is 46,481,122.
This Form 10-Q consists of 10 pages consecutively numbered.
The Exhibit Index to this Form 10-Q is set forth on page 10.
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PART I FINANCIAL INFORMATION
ST. JUDE MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and six months ended June
30, 1994 are not necessarily indicative of the results that may be expected for
the full year ended December 31, 1994. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under this pronouncement, debt securities that the
Company does not have the positive intent to hold to maturity and all marketable
equity securities are classified as available-for-sale and are carried at fair
value. Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of shareholders' equity.
The Company adopted the provisions of the new standard for investments held or
acquired after January 1, 1994 and has classified all investments as
available-for-sale. Previously, the Company had classified its investments as
available-for-sale and carried them at amortized cost. In accordance with the
Statement, prior period financial statements have not been restated to reflect
the change in accounting principle; however, the effect of this change to ref-
lect the net unrealized holding gains on securities classified as available-
for-sale was to increase shareholders' equity at December 31, 1993 by $1,248,000
(net of $764,000 of current deferred income taxes).
There were no realized gains on sales of available-for-sale securities during
the second quarter and first six months of 1994. The net adjustment to
unrealized holding gains (losses) on available-for-sale securities included as a
separate component of shareholders' equity was a gain of $122,000 (net of
$74,000 of current deferred income taxes) for the second quarter of 1994 and a
loss of $1,568,000 (net of $962,000 of current deferred income taxes) for the
first six months of 1994.
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PART I FINANCIAL INFORMATION
ST. JUDE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $66,736 $66,944 $133,421 $135,098
Cost of sales 16,459 16,327 33,330 33,256
Gross profit 50,277 50,617 100,091 101,842
Operating expenses:
Selling, general & administrative 14,142 12,641 27,927 25,434
Research & development 2,557 2,827 5,247 5,541
Total operating expenses 16,699 15,468 33,174 30,975
Operating profit 33,578 35,149 66,917 70,867
Other income 3,071 3,566 6,847 7,028
Income before taxes 36,649 38,715 73,764 77,895
Income tax provision 10,445 9,872 21,023 19,863
Net income $26,204 $28,843 $ 52,741 $ 58,032
Earnings per share:
Primary $ 0.56 $ 0.61 $ 1.13 $ 1.22
Fully diluted $ 0.56 $ 0.61 $ 1.13 $ 1.22
Dividends paid per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
Shares outstanding
Primary 46,671 47,326 46,660 47,551
Fully diluted 46,790 47,403 46,777 47,623
</TABLE>
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PART I FINANCIAL INFORMATION (continued)
ST. JUDE MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1994 1993
ASSETS (UNAUDITED) (NOTE 1)
Current assets:
<S> <C> <C>
Cash and cash equivalents $108,793 $ 26,987
Marketable securities 294,581 342,004
Accounts receivable, less allowance
(1994 - $2,189; 1993 - $1,856) 45,880 40,159
Inventories
Finished goods 14,918 15,414
Work in process 2,659 2,677
Raw materials 14,530 14,422
32,107 32,513
Other current assets 11,151 8,247
Total current assets 492,512 449,910
Property, plant and equipment 70,923 65,962
Less accumulated depreciation (21,150) (18,777)
Net property, plant and equipment 49,773 47,185
Other assets 28,002 29,722
TOTAL ASSETS $570,287 $526,817
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 40,235 $ 40,912
Deferred income taxes 1,664 1,664
Shareholders' equity:
Preferred stock, par value $1.00 per share -
25,000,000 shares authorized; no shares issued -- --
Common stock, par value $.10 per share -
100,000,000 shares authorized; issued and
outstanding 1994 - 46,481,122 shares;
1993 - 46,414,261 4,648 4,641
Additional paid-in capital 28,103 27,411
Retained earnings 499,252 455,798
Cumulative translation adjustment (2,047) (3,609)
Unrealized loss on available-for-sale securities (1,568) --
Total shareholders' equity 528,388 484,241
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $570,287 $526,817
</TABLE>
NOTE: The balance sheet at December 31, 1993 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
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PART I FINANCIAL INFORMATION (continued)
ST. JUDE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1994 1993
Operating Activities:
<S> <C> <C>
Net income $ 52,741 $ 58,032
Depreciation and amortization 4,408 4,299
Working capital change (7,574) (5,017)
Net cash provided by operating activities 49,575 57,314
Investment Activities:
Purchases of property, plant and equipment (5,144) (9,622)
Sales (purchases) of available-for-sale securities, net 45,855 (64,186)
Other investing activities (83) (3,443)
Net cash provided by (used in) investing activities 40,628 (77,251)
Financing Activities:
Proceeds from exercise of stock options 699 1,568
Cash dividends paid (9,287) (9,447)
Common stock repurchased -- (18,373)
Net cash used in financing activities (8,588) (26,252)
Effect of currency exchange rate changes on cash 191 (293)
Increase (decrease) in cash and cash equivalents 81,806 (46,482)
Cash and cash equivalents at beginning of year 26,987 68,346
Cash and cash equivalents at end of period $ 108,793 $ 21,864
</TABLE>
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ST. JUDE MEDICAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in Thousands except per Share Amounts)
RESULTS OF OPERATIONS:
NET SALES. Net sales totalled $66,736 and $66,944 in the second quarter 1994 and
1993, respectively. For the first six months of 1994, net sales totalled
$133,421, a $1,677 (1.2%) decrease from net sales recorded in the comparable
period of 1993. The majority of net sales were derived from the sale of
mechanical heart valves.
The $208 (.3%) decrease in net sales for the quarter as compared to 1993
reflected slightly higher mechanical heart valve unit sales, offset by a lower
overall average selling price attributable to a shift in sales to countries
where the Company sells through distributors at lower prices than those charged
in countries where sales are made directly to hospitals. In addition, foreign
currency translation decreased net sales by approximately $550 (.8%) for the
quarter.
During the first six months of 1994, the net sales decrease from the comparable
1993 period resulted from a slight decline in domestic unit sales of mechanical
heart valves as well as the shift toward distributor based business noted above.
The first half of 1993 benefited from initial inventory stocking orders for the
Hemodynamic Plus series of the St. Jude Medical(R) mechanical heart valve in the
U.S.. Foreign currency translation decreased net sales by approximately $1,450,
or 1.1% for the first six months of 1994.
GROSS PROFIT. The second quarter 1994 gross profit was $50,277, or 75.3% of net
sales, as compared to $50,617, or 75.6% of net sales, during the comparable 1993
period. For the first six months of 1994 and 1993, gross profit was $100,091, or
75.0% of net sales, and $101,842, or 75.4% of net sales, respectively. The
slight decrease in gross profit margins for both periods was principally
associated with foreign currency translation, a price increase on purchased
mechanical heart valve components, costs relating to the Company's new
mechanical heart valve component manufacturing facility and a lower overall
average selling price attributable to a higher percentage of distributor sales.
These items were partially offset by higher domestic selling prices and
manufacturing efficiencies in the production of components and assembly of heart
valves.
SELLING, GENERAL AND ADMINISTRATIVE. For the second quarter 1994, selling,
general and administrative (SG&A) expenses were $14,142, a $1,501 (11.9%)
increase over the $12,641 recorded in the second quarter 1993. On a year-to-date
basis, 1994 SG&A expenses totalled $27,927, a $2,493 (9.8%) increase over the
$25,434 recorded in 1993.
The second quarter and first six month SG&A expense increases were primarily
associated with the expansion of the Company's worldwide sales forces in
response to increased competition, higher marketing expenditures attributable to
product line extensions and new products, and costs relating to obtaining ISO
9000 certification.
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RESEARCH AND DEVELOPMENT. Research and development (R&D) expenses were $2,557
and $2,827 for the second quarters of 1994 and 1993, respectively. For the first
six months, R&D expenses totalled $5,247 and $5,541 for 1994 and 1993,
respectively.
The decrease in R & D expense from 1993 for both the second quarter and the
first six months was attributable to reduced funding of the Hancock Jaffe
Laboratories joint venture due to the completion of the development phase of the
new SJM X-CellTM tissue heart valve. Also, lower expense levels were incurred in
connection with the development of an advanced intra-aortic balloon pump as that
product moved closer to production.
OTHER INCOME. Other income for the second quarter 1994 decreased $495 to $3,071
as compared to the second quarter 1993. For the first six months, other income
totalled $6,847 and $7,028 for 1994 and 1993, respectively. The decrease for
both the second quarter and the first six months resulted from lower investment
rates of return as rollover investments were invested for shorter durations in
anticipation of the need to fund diversification activities and unrealized
foreign exchange losses.
INCOME TAX PROVISION. The Company's 1994 effective income tax rate was 28.5% as
compared to 25.5% in 1993. The increase was principally attributable to reduced
tax benefits available from the Company's Puerto Rican operations as a result of
The Omnibus Budget Tax Reconciliation Act of 1993.
NET INCOME. Net income for the second quarter 1994 of $26,204 decreased $2,639,
or 9.1%, from the $28,843 reported in the second quarter 1993. Earnings per
share decreased to $.56 from $.61 between the two quarters.
For the first six months, net income was $52,741 and $58,032 for 1994 and 1993,
respectively. Earnings per share in 1994 on a year-to-date basis decreased 7.4%
to $1.13 from $1.22 in the first six months of 1993.
OUTLOOK. The Company's core mechanical heart valve business remains strong;
however, both domestic as well as international competitive pressures, hospital
consolidations and healthcare reform worldwide are expected to reduce pricing
flexibility and could further impact unit sales growth.
An Internal Revenue Service proposed change to IRC Section 936 regulations
pertaining to the computation of Puerto Rican profits would, if finalized,
further reduce the tax benefits the Company derives from its Puerto Rican
operations. The Company cannot predict when or if the proposed regulation will
become final. No provision has been made for this proposed regulation change.
On June 28, 1994, the Company announced it had signed a definitive agreement to
acquire the worldwide cardiac rhythm management business of Siemens AG for a
price in excess of
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$500,000. The acquisition is anticipated to close on or before September 30,
1994. For the year ended September 30, 1993, net sales of this business exceeded
$360,000. The Company will continue to actively seek other diversification
opportunities in the form of acquisitions, joint ventures, partnerships and
investments in emerging technology companies, as well as through internal
research and development. The Company cannot predict the size or timing of such
diversification activities.
FINANCIAL CONDITION: The financial condition of the Company at June 30, 1994
continues to be strong. Cash and marketable securities increased to $403,374 at
June 30, 1994, an increase of $11,090 from the March 31, 1994 balance of
$392,284. The increase is primarily the result of cash flow from operations. The
ratio of current assets to current liabilities was 12.2 to 1 at June 30, 1994.
The acquisition of Siemens AG's cardiac rhythm management business will
significantly change the Company's capital structure. The acquisition will be
funded by a combination of cash and bank debt. Bank borrowings are anticipated
to be approximately $250,000.
Total assets increased $43,470 during the first six months of 1994. In addition
to the cash and marketable securities increase, accounts receivable increased
$5,721 due to the shift to distributor based sales, as well as second quarter
net sales which were $8,138 higher than fourth quarter 1993 net sales.
Shareholders' equity increased $44,147 during the first six months of 1994 to
$528,388. The increase resulted from net income of $52,741, a foreign currency
translation adjustment of $1,562, and $699 associated with the exercise of stock
options and the issuance of restricted stock less cash dividends of $9,287 and a
net unrealized loss on investments of $1,568.
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PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a named defendant in a purported class action captioned
Weisburgh, et al. v. St. Jude Medical, Inc., et al. filed July 2,
1992, in the United States District Court for the District of
Minnesota and later amended. The second amended complaint also names
as defendants certain officers and directors alleged to control the
Company. The plaintiff purports to represent a class consisting of all
persons who purchased common stock of the Company during the period
from December 17, 1991, through July 2, 1992. The second amended
complaint alleges that the defendants deceived the investing public
regarding the Company's finances, financial condition and present and
future prospects and induced the plaintiff class to purchase the
Company's common stock during the period prior to July 2, 1992, at
inflated prices. The second amended complaint asserts claims for
federal securities fraud, common law fraud and negligent
misrepresentation. The second amended complaint seeks damages
(including punitive damages) in an unspecified amount, attorneys'
fees, costs and expenses. On March 2, 1993, the Company and the other
defendants moved to dismiss all claims for failure to state a claim
for relief and failure to plead fraud with particularity. In its Order
dated May 28, 1993, the court denied the defendant's motion at that
time but directed the plaintiff to file a second amended complaint
with more particularized allegations of fraud. The plaintiff has filed
a second amended complaint and on June 28, 1993, the Company and the
other defendants moved to dismiss the second amended complaint for
failure to state a claim for relief and failure to plead fraud with
particularity. The plaintiff has moved for a class certification. Both
motions are under advisement. The Company believes that the second
amended complaint is without merit and intends to pursue a vigorous
defense of the action.
The Company is unaware of any other pending legal proceedings which it
regards as likely to have a material adverse effect on its business.
Item 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS None
Item 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES Not Applicable
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None
Item 5. OTHER INFORMATION None
Item 6. EXHIBITS and REPORTS ON FORM 8-K
The exhibit index can be found on page 10. There were no Reports on
Form 8-K filed during the quarter.
9 of 10
(a) Exhibits
Exhibit
<TABLE>
<CAPTION>
Number Exhibit
<C> <S>
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
</TABLE>
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.
8/8/94 /STEPHEN L. WILSON/
DATE STEPHEN L. WILSON
Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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