UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 09178
DAIG CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1245127
(State of Incorporation) (I.R.S. Employer
Identification No.)
14901 DeVeau Place
Minnetonka, Minnesota, 55345
(Address of principal executive offices)
Telephone Number: (612) 933-4700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each
exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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 and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. (X)
Aggregate market value of voting stock of Daig Corporation held by
nonaffiliates of the Registrant as of November 30, 1995, based on
the closing price of $21.25 as reported on the NASDAQ Stock Market:
$146,101,060.
Shares of Common Stock outstanding on November 30, 1995:
15,236,144
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its Regular Meeting of
Shareholders to be held in February 1996 are incorporated by
reference into Part III.
<PAGE>
PART I.
Item 1. Business
(a) General Development of Business
During fiscal year 1995, no material changes occurred in
the mode of conducting business. There were no changes in the
structure of the Company. Refer to Items 1c, 6 and 7 for
additional information concerning developments in Daig's business
during this fiscal year.
(b) Industry Segments
Daig is engaged in one industry segment: the business of
designing, manufacturing, and marketing medical devices for
cardiovascular applications.
(c) Narrative Description of Business
(i) Products.
Daig designs, manufactures, and markets a variety of
medical devices for cardiovascular applications. These medical
devices consist primarily of disposable catheters and catheter
accessories used in invasive cardiology and sometimes in other
areas of medicine.
The Company's main disposable catheters and catheter
accessories currently are percutaneous catheter introducers,
diagnostic guidewires, electrophysiology catheters and bipolar
temporary pacing catheters. Percutaneous 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 product line consists primarily of peel-away sheaths,
sheaths with and without hemostasis valves, dilators, guidewires,
repositioning sleeves, obturators, and needles, all in a variety of
sizes and packaging configurations.
Diagnostic guidewires are used in conjunction with
percutaneous catheter introducers to aid 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 through catheter introducers to aid in
the diagnosis and treatment of cardiac arrhythmias or abnormal
heart rhythms. Between two and four electrophysiology catheters
usually are used in each electrophysiology procedure. These
catheters are available in multiple configurations.
Bipolar temporary pacing catheters are inserted
percutaneously into the human body temporarily for use with
external pacemakers to provide patient stabilization following a
heart attack or during surgical procedures. These devices usually
are used for a time period ranging from an hour or less to a
maximum of one week. Daig sells several designs of temporary
pacing catheters.
The principal markets for all of Daig's products are
hospitals or hospital purchasing groups and original equipment
manufacturers (OEMs) throughout the world. Daig packages its
products both under its own label and under private label. Daig's
products are distributed through direct sales representatives,
independent distributors, and OEMs.
(ii) Status of Products
Not applicable.
(iii) Sources and Availability of Raw Materials.
Raw materials used to manufacture Daig's products
are readily available from a number of suppliers.
(iv) Patents, Trademarks, Licenses, Franchises, and
Concessions.
Daig actively seeks patent and trademark protection
for its products and business. Daig believes valid patents and
trademarks can contribute materially to its competitive position.
The following is a discussion of Daig's principal patents and
trademarks.
Daig owns a variety of trademarks, including
trademarks registered both in the United States and in foreign
countries. More trademark applications are pending. These
trademarks can have an indefinite life under existing trademark law
so long as they are properly used and protected.
Daig owns a number of patents including patents for
a temporary pacing catheter apparatus, a break-away handle for a
percutaneous introducer peel-away sheath, several hemostasis valve
designs, a dilator locking device, a control handle for a steerable
catheter, and catheter tip designs. Daig is pursuing one or more
other patent applications that have not yet been disclosed publicly
and are considered trade secrets.
There can be no assurance that the United States
Patent and Trademark Office will grant patents or trademarks with
regard to any pending applications, or that the patents or
trademarks if issued will provide any material competitive
advantage. The fact that the Company owns the patents and
trademarks that already have been granted does not necessarily
provide protection from use by others since both patents and
trademarks can be challenged and invalidated through administrative
or court proceedings.
Daig holds a license pertaining to three United
States patents and related foreign patents which involve a
percutaneous introducer with a peel-away sheath.
Daig does not hold any franchises or concessions.
(v) Seasonal Business.
Daig's business is not seasonal.
(vi) Practices Relating to Working Capital Items.
Daig historically has carried significant inventory
and continues this practice in order to facilitate manufacturing
flexibility to maintain an adequate supply of all products to allow
shipments to be made upon receipt of orders, particularly orders
from hospitals and independent distributors. Daig carries
significant amounts of raw material inventory in certain instances
(1) due to the cost effectiveness of volume purchases and (2) to
protect the Company on a selective basis from uncertain vendor
deliveries.
(vii) Customers.
During fiscal year 1995 there were no Daig customers
accounting for sales in excess of 10 percent.
(viii) Backlog Orders.
Daig has an insignificant amount of backlog orders.
(ix) Government Contracts.
Daig has no government contracts.
(x) Competitive Conditions in the Business.
Daig does not have the market research and other
resources needed to give a complete statement of the competitive
conditions facing its business. Subject to this qualification,
Daig observes the following concerning competitive conditions
affecting its business.
The market areas Daig focuses on are the cardiac
catheterization laboratories and the electrophysiology laboratories
in hospitals throughout the world. These are growing market areas
with numerous competitive companies. Daig and other companies
compete through a combination of methods including differences in
product performance, service, and price. Daig believes the
positive factors supporting its competitive position in each regard
outweigh the negative factors as evidenced by the Company's ongoing
growth and gain of market share.
(xi) Research and Development Activities
During the twelve month periods ended September 30,
1995, 1994, and 1993, Daig incurred expenses of approximately
$3,335,000, $2,463,000, and $1,897,000, respectively, for Company
sponsored engineering and development activities.
(xii) Environmental Regulation
Compliance with federal, state, and local provisions
relating to the protection of the environment does not have a
material effect on Daig's operations.
(xiii) Employees
As of November 1, 1995, Daig had 260 employees.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales.
Daig's revenue, operating profit or loss, and related
assets are set forth in Daig's financial statements, which are
included as part of this Form 10-K and incorporated herein by
reference. Daig's foreign sales for each of the last three fiscal
years were approximately:
Fiscal 1995 $9,813,000
Fiscal 1994 7,974,000
Fiscal 1993 6,508,000
Item 2. Properties
The Company leases its administrative and executive
offices and production facilities, totaling approximately 88,100
square feet at two locations in Minnetonka, Minnesota. These
leases expire in 1999.
Item 3. Legal Proceedings
There are no such matters requiring disclosure.
Item 4. Submission of Matters to a Vote of Security Holders
There are no such matters requiring disclosure.
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information
In June 1993, Daig's common stock began trading on the
NASDAQ National Market System under the symbol DAIG. Prior to this
time, the Company's common stock was publicly traded on the local
over-the-counter market in Minneapolis, Minnesota. The following
table sets forth the high and low sales prices of the Company's
common stock in each quarter for the period from October 1, 1993
through September 30, 1995 reported in the NASDAQ National Market
System. Sale prices represent quotations between dealers without
adjustment for retail markups, markdowns or commissions, and may
not represent actual transactions.
Low High
Fiscal Year 1995:
First quarter $ 7 1/2 $ 9 7/8
Second quarter 9 1/2 15 1/2
Third quarter 12 1/4 18
Fourth quarter 18 1/2 25 3/4
Fiscal Year 1994:
First quarter $ 4 3/8 $ 7 1/4
Second quarter 6 7 1/4
Third quarter 5 1/8 7
Fourth quarter 5 1/2 8 1/2
Sales prices have been restated where applicable to reflect two-
for-one stock splits that took effect on January 20, 1994 and March
9, 1995.
(b) Holders.
As of October 1, 1995, there were approximately 396
shareholders of record of Daig common stock. There were an unknown
number of additional holders of common stock whose stock was being
held in nominee form.
(c) Dividends.
Daig has not declared cash dividends on its common stock
during the last two fiscal years. Daig believes it will not pay
cash dividends in the foreseeable future due to its need for
capital to fund growth and to fund contingent liabilities should
they arise. (See Management's Discussion and Analysis of Financial
Condition and Results of Operations.)
Item 6. Selected Financial Data
The selected financial data presented below was derived
from the financial statements of the Company which have been
audited by Grant Thornton LLP, independent certified public
accountants. The data should be read in conjunction with the
Company's financial statements and the accompanying notes and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
STATEMENTS OF EARNINGS DATA:
<TABLE>
<CAPTION>
Fiscal Year Ended
September 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $38,322,068 $32,309,390 $25,678,275 $19,186,682 $11,226,878
Net earnings 9,898,235 7,574,065 5,229,270 3,574,953 477,313
Net earnings per
common share .65 .50 .35 .25 .04
Dividends per share - - - - -
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
September 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total current assets $28,448,402 $19,067,124 $12,750,353 $8,822,009 $4,224,160
Working capital 25,868,646 16,344,479 10,282,601 5,951,883 2,965,750
Total assets 34,054,834 24,299,488 17,116,765 11,645,445 6,968,628
Long-term obligations - - 283,718 570,824 1,165,846
Shareholders' equity 31,475,078 21,576,843 14,055,778 7,586,785 3,626,662
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(1)(2) Liquidity and Capital Resources
Working capital increased by approximately $9,524,000
or 58% during fiscal year 1995. The cash and short-term
investment components of working capital increased approximately
$7,405,000 due primarily to the favorable results of operations.
Trade accounts receivable gained approximately $1,192,000 without
a material change in the aging. Inventory rose approximately
$586,000 while the inventory turnover rate remained relatively
constant. These gains in working capital were offset in part by
increases in liabilities normally incident to the growth of the
business.
The Company had no borrowings outstanding on September
30, 1995 under a $4,000,000 revolving line of credit. The line
of credit is available to supplement working capital needs.
The Company recognizes that additional capital may be
required in the future. Daig has collateral available to support
additional debt financing. It is also possible that additional
equity could be raised through private or public stock offerings
should the Company's capital or liquidity needs exceed its other
financing alternatives. The actual availability and relative
cost of additional capital through debt financing or stock
offerings have not been ascertained.
(3) Results of Operations
Sales
Total sales increased 19%, 26% and 34% in fiscal years
1995, 1994, and 1993, respectively. Approximately 69% of the
Company's sales gain in 1995 came from the domestic market while
the remainder reflected expansion of export sales. Daig's sales
success in 1995 compared to prior periods was primarily the
result of an increase in unit volume sales of existing product
lines due to the continued expansion of marketing and sales
activities of the Company. Sales results also reflect the impact
of ongoing additions to the Company's line of electrophysiology
catheters, percutaneous catheter introducers and diagnostic
guidewires.
Earnings
Gross profit as a percentage of net sales improved 3.1
percentage points to 68.6% in fiscal year 1995 versus the 65.5%
gross profit earned in fiscal year 1994. Gross profit as a
percentage of sales was 64.6% in fiscal 1993. This sustained
improvement is equally attributed primary to (1) continued gains
in manufacturing efficiency based on trade secret technology and
economies of scale and (2) greater use of existing manufacturing
capacity.
Selling, general and administrative expenses, as a
percentage of net sales has improved slightly each year during
the last three fiscal years as follows: 1995 - 25.6%, 1994 -
26%, 1993 - 27%. The Company is experiencing efficiency gains
due to economies of scale while it continues to invest in
additional selling and marketing to support further growth of the
business.
Engineering and development expenses increased in fiscal
year 1995 to 8.7% of net sales as compared with 7.6% in fiscal
year 1994 and 7.4% in fiscal year 1993. The increase in 1995 is
primarily related to development expenses incurred in connection
with conducting a clinical study to support expanding the
diagnostic labeling of the Company's A steerable
electrophysiology catheter to include certain ablation therapies.
In addition, the Company is investigating the use of its A
steerable electrophysiology catheter in combination with
specialized guiding introducers as a cure for a heart rhythm
disorder - atrial fibrillation. In July 1995, the Company
received an Investigational Device Exemption ("IDE") from the
Food and Drug Administration ("FDA") and has commenced a clinical
trial to gather data in support of the atrial fibrillation
indication. There can be no assurance that the Company will be
successful in obtaining FDA clearance for any new product
indications.
Interest income increased to approximately $814,000 in
fiscal year 1995 from approximately $350,000 in fiscal year 1994
and approximately $165,000 in fiscal year 1993. The increase in
interest income reflects the increase in the amount of cash
available to invest during these periods.
The provisions for income taxes as a percentage of earnings
before income taxes was 29.1% in fiscal year 1995 and 30.8% in
fiscal year 1994 and 34.2% in fiscal year 1993. These rates
reflect the permanent tax savings related to federal and state
tax credits generated by the increase in research and development
activities, expanded use of the Company's foreign sales
corporation and, in 1995 and 1994, recognition for financial
statement purposes of tax benefits related to net operating loss
carry-forwards. As of September 30, 1995 the benefits related to
the net operating loss carryforwards have been fully utilized.
Item 8. Financial Statements and Supplementary Data
This information is included below following "Index to
Financial Statements."
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
<PAGE>
PART III.
Item 10. Directors and Executive Officers of the Registrant.
John J. Fleischhacker. Mr. Fleischhacker, age 48, is
the Chief Executive Officer and Chairman of the Board of
Directors of Daig Corporation. Mr. Fleischhacker has served in
these positions continuously during all relevant periods. Mr.
Fleischhacker's current term as director extends one year or
until replaced. Mr. Fleischhacker is the founder of Daig
Corporation.
Daniel J. Starks. Mr. Starks, age 41, is a member of
the Board of Directors, Secretary, and President of Daig
Corporation. He has served in these positions continuously
during all relevant periods. His current term as director
extends one year or until replaced.
John C. Heinmiller. Mr. Heinmiller, age 41, became a
member of Daig's Board of Directors in June 1993. Mr. Heinmiller
joined the Company in March 1995 as its Vice President - Finance
and Administration. During the period October 1991 through
February 1995, Mr. Heinmiller was Vice President of Finance and
Corporate Secretary for Lifecore Biomedical, Inc., a company that
develops, manufactures, and markets sterile medical devices for a
variety of surgical applications. Mr. Heinmiller is a member of
the Board of Directors of Lifecore Biomedical, Inc. Mr.
Heinmiller was a partner with Grant Thornton LLP, a national CPA
firm, for more than five years prior to October 1991. His
current term as director of Daig Corporation extends one year or
until replaced.
Edward F. Fox. Mr. Fox, age 41, became a member of
Daig's Board of Directors in June 1995. Mr. Fox has been a
member of the law firm Doherty, Rumble & Butler P.A. of
Minneapolis, Minnesota and one of its predecessor firms since
1979. Doherty, Rumble & Butler has represented the Company on
various legal matters since 1988.
Dennis A. Stowers. Mr. Stowers, age 46, is a member of
the Board of Directors and the Director of Manufacturing for Daig
Corporation. Mr. Stowers joined the board of directors in June
1993 and has served as Director of Manufacturing for more than
the last five years. His current term as director extends one
year or until replaced.
Dale L. Harris. Mr. Harris, age 63, became a member of
Daig's Board of Directors in June 1993. Mr. Harris currently
serves as Assistant to the President of Modern Computer Services
Inc., a company providing computer services to the financial
community. Mr. Harris served as Executive Vice President of Bank
Windsor, Minneapolis, Minnesota from July 1992 until his
retirement earlier this year. For more than five years before
that, Mr. Harris served as Senior Vice President of Firstar
Corporation of Minnesota and as President of Shelard National
Bank prior to its acquisition by Firstar. His current term as
director extends one year or until replaced.
All officers continue to serve at the discretion of
Daig's Board of Directors.
Item 11. Executive Compensation.
All of the information required under this Item is
incorporated by reference from Daig Corporation's proxy statement
for the regular meeting of shareholders to be held in February
1996.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The following information is accurate, to the best of
Daig's knowledge, as of November 1, 1995:
(a) Security Ownership of Certain Beneficial Owners.
<TABLE>
<S> <C> <S> <S>
(1) Title of (2) Name and Address (3) Amount and Nature of (4) Percent
Class of Beneficial Owner Beneficial Ownership of Class
Common John J. Fleischhacker Direct ownership of 5,375,000 35.3%
14901 DeVeau Place shares
Minnetonka, MN 55345
Common Daniel J. Starks Direct ownership of 2,779,600 18.2%
14901 DeVeau Place shares
Minnetonka, MN 55345
</TABLE>
<PAGE>
(b) Security Ownership of Management.
<TABLE>
<S> <S> <S> <S>
(1) Title of (2) Name and Address (3) Amount and Nature of (4) Percent
Class of Beneficial Owner Beneficial Ownership of Class
Common John J. Fleischhacker Direct ownership of 5,375,000 35.3%
14901 DeVeau Place shares
Minnetonka, MN 55345
Common Daniel J. Starks Direct ownership of 2,779,600 18.2%
14901 DeVeau Place shares
Minnetonka, MN 55345
Common John C. Heinmiller Direct ownership of 36,200
14901 DeVeau Place shares *
Minnetonka, MN 55345
Common Dennis A. Stowers Direct ownership of 160,000 1%
14901 DeVeau Place shares
Minnetonka, MN 55345
Common Edward F. Fox None
14901 DeVeau Place
Minnetonka, MN 55345
Common Dale L. Harris Direct ownership of 10,000 *
14901 DeVeau Place shares
Minnetonka, MN 55345
Common All Officers and Direct ownership of 8,360,800 54.9%
Directors as a Group shares
*Less than 1%
</TABLE>
<PAGE>
Item 13. Certain Relationships and Related Transactions.
(a) Transactions With Management and Others.
See Note E of the Notes to Financial Statements.
(b) Certain Business Relationships.
There are no such relationships as defined in the
applicable regulations.
(c) Indebtedness of Management.
Daniel J. Starks, President and Secretary of the Board,
had a non-interest bearing loan outstanding of $90,069
as of November 1, 1995. This is the result of tax
withholding transactions. The largest aggregate amount
of indebtedness during fiscal year 1995 was $138,069.
John C. Heinmiller, Vice President - Finance and
Administration and a member of the Board, had a non-
interest bearing loan outstanding of $440,000 as of
November 1, 1995. This is the result of a stock option
exercise. The largest aggregate amount of indebtedness
during fiscal year 1995 was $440,000.
(d) Transactions With Promoters.
There were no such transactions.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) Financial Statements. See "Index to
Financial Statements" on page 16.
(a) (2) Financial Statements Schedules. None
required.
(a) (3) Exhibits.
Except as indicated, all exhibits listed below have
previously been filed as exhibits to the Company's
Annual Report on Form 10-K in prior years and are
incorporated herein by reference.
(3) Articles of Incorporation
(10) Material Contracts
(27) Financial Data Sheet, filed herewith
No items on Form 8-K have been filed during the quarter
ending September 30, 1995.
<PAGE>
Item 15. Signatures
Pursuant to the requirements of Section 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.
DAIG CORPORATION
Date: December 12, 1995 By: /s/ John J. Fleischhacker
Chairman and Chief Executive Officer
Date: December 12, 1995 By: /s/ Daniel J. Starks
President
Date: December 12, 1995 By: /s/ John C. Heinmiller
Vice President - Finance and Administration
<PAGE>
Pursuant to the requirements of the Securities Exchange
act of 1934, this report has been signed below by the following
directors on behalf of the registrant and in the capacities on
the dates indicated.
Date: December 12, 1995 By /s/ John J. Fleischhacker
Director
Date: December 12, 1995 By /s/ Daniel J. Starks
Director
Date: December 12, 1995 By /s/ John C. Heinmiller
Director
Date: December 12, 1995 By /s/ Dennis A. Stowers
Director
Date: December 12, 1995 By /s/ Edward F. Fox
Director
Date: December 12, 1995 By /s/ Dale L. Harris
Director
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-1
Balance Sheets F-2
Statements of Earnings F-4
Statements of Changes in Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Daig Corporation
We have audited the accompanying balance sheets of Daig
Corporation (a Minnesota corporation) as of September 30, 1995
and 1994 and the related statements of earnings, changes in
shareholders' equity and cash flows for each of the three years
in the period ended September 30, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Daig Corporation as of September 30, 1995 and 1994 and the
results of its operations and cash flows for each of the three
years in the period ended September 30, 1995, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Minneapolis, Minnesota
October 25, 1995 (except for note C, as to which
the date is November 10, 1995)
<PAGE>
<TABLE>
<CAPTION>
DAIG CORPORATION
BALANCE SHEETS
September 30,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note A1) $18,839,199 $ 8,294,694
Short-term investments (note A1) - 3,139,277
Accounts receivable (note A2)
Trade, net of allowance 4,960,905 3,768,447
Other (note E) 393,265 425,977
Inventories (note A3)
Raw material 1,392,470 1,356,146
Work in process 412,930 382,049
Finished goods 2,042,355 1,523,860
Prepaid expenses and other 407,278 176,674
Total current assets 28,448,402 19,067,124
PROPERTY AND EQUIPMENT,
at cost (note A4)
Machinery and equipment 6,780,685 5,659,920
Furniture and fixtures 2,708,864 2,471,181
Tooling 1,392,709 1,239,605
Leasehold improvements 1,801,175 1,559,433
12,683,433 10,930,139
Accumulated depreciation
and amortization (7,077,001) (5,963,063)
5,606,432 4,967,076
OTHER ASSETS - 265,288
$34,054,834 $24,299,488
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAIG CORPORATION
BALANCE SHEETS
September 30,
1995 1994
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,513,728 $ 1,061,781
Accrued compensation 911,372 906,078
Accrued expenses 78,817 89,889
Income taxes payable (note C) 75,839 664,897
Total current liabilities 2,579,756 2,722,645
COMMITMENTS AND CONTINGENCIES (notes
C and F) - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 40,000,000
shares authorized; 15,236,144 and
15,204,144 issued and outstanding in
1995 and 1994, respectively (note A5) 152,362 152,042
Additional paid-in capital 3,827,461 3,387,781
Retained earnings 27,935,255 18,037,020
Amount receivable for shares issued (note D) (440,000) -
31,475,078 21,576,843
$34,054,834 $24,299,488
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAIG CORPORATION
STATEMENTS OF EARNINGS
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
NET SALES (notes A2 and E) $ 38,322,068 $ 32,309,390 $ 25,678,275
COST OF SALES (note E) 12,033,723 11,131,030 9,091,106
Gross profit 26,288,345 21,178,360 16,587,169
OPERATING EXPENSES
Selling, general and
administrative 9,820,552 8,394,391 6,932,362
Engineering and development 3,334,989 2,463,424 1,897,010
Total operating expenses 13,155,541 10,857,815 8,829,372
Operating profit 13,132,804 10,320,545 7,757,797
OTHER INCOME (EXPENSE)
Interest income 814,248 349,756 164,959
Interest expense (25,998) (61,743) (108,072)
Gain on sale of assets and
other 37,529 336,398 135,754
825,779 624,411 192,641
EARNINGS BEFORE INCOME TAXES 13,958,583 10,944,956 7,950,438
PROVISION FOR INCOME TAXES
(note C) 4,060,348 3,370,891 2,721,168
NET EARNINGS $ 9,898,235 $ 7,574,065 $ 5,229,270
EARNINGS PER SHARE (note A5) $ .65 $ .50 $ .35
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (note A5) 15,222,900 15,214,864 14,828,892
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
DAIG CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 1995, 1994 and 1993
Amount
Additional Receivable
Common Stock Paid-In Retained for Shares
Shares Amount Capital Earnings Issued Total
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT OCTOBER 1, 1992 13,744,144 $ 137,442 $ 2,202,853 $ 5,246,490 $ - $ 7,586,785
Net earnings - - - 5,229,270 - 5,229,270
Issuance of common stock,
a portion due to exercise of
stock options with related
tax benefits 1,464,000 14,640 1,237,868 (12,785) - 1,239,723
BALANCES AT SEPTEMBER 30, 1993 15,208,144 152,082 3,440,721 10,462,975 - 14,055,778
Net earnings - - - 7,574,065 - 7,574,065
Issuance of common stock 16,000 160 71,960 (120) - 72,000
Purchase and retirement of
common stock (20,000) (200) (124,900) 100 - (125,000)
BALANCES AT SEPTEMBER 30, 1994 15,204,144 152,042 3,387,781 18,037,020 - 21,576,843
Net earnings - - - 9,898,235 - 9,898,235
Issuance of common stock 32,000 320 439,680 - (440,000) -
BALANCES AT SEPTEMBER 30, 1995 15,236,144 $ 152,362 $ 3,827,461 $ 27,935,255 $(440,000) $ 31,475,078
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAIG CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net earnings $ 9,898,235 $ 7,574,065 $ 5,229,270
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,223,835 1,298,010 1,127,242
Loss (gain) on sale of equipment 2,834 (305,678) (71,179)
Non-cash consulting expense - 105,000 103,500
Non-cash compensation 48,000 167,186 127,000
11,172,904 8,838,583 6,515,833
Change in current operating items:
Accounts receivable (1,192,746) (694,172) (1,006,711)
Inventories (585,700) (1,143,799) (289,095)
Prepaid expenses and other (230,604) 40,826 (19,863)
Accounts payable 451,947 (229,310) (157,105)
Accrued expenses (5,778) 348,294 28,337
Other liabilities - - (97,077)
Income taxes payable (589,058) (457,326) (259,562)
Net cash provided by operating
activities 9,020,965 6,703,096 4,714,757
Cash flows from financing activities:
Proceeds from issuance of common
stock - - 458,855
Purchase and retirement of common
stock - (125,000) -
Net cash provided (used) by
financing activities - (125,000) 458,855
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
DAIG CORPORATION
STATEMENTS OF CASH FLOWS - continued
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of property and
equipment (1,866,622) (2,877,198) (2,540,205)
Proceeds from disposal of property
and equipment 250,885 853,742 154,850
Purchase of short-term investments - (877,395) (4,075,376)
Proceeds from short-term investments 3,139,277 775,806 1,537,688
Net cash provided (used) by
investing activities 1,523,540 (2,125,045) (4,923,043)
Net increase in cash and cash
equivalents 10,544,505 4,453,051 250,569
Cash and cash equivalents at
beginning of year 8,294,694 3,841,643 3,591,074
Cash and cash equivalents at end
of year $ 18,839,199 $ 8,294,694 $ 3,841,643
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 25,998 $ 61,743 $ 122,347
Income taxes 4,449,406 3,828,217 2,980,731
Supplemental disclosure of non-cash financing activity
During fiscal 1995, in connection with the exercise of a non-
qualified stock option, the Company issued 32,000 shares of its
common stock in exchange for a $440,000 non-interest bearing
promissory note.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Daig Corporation (Daig or the Company) designs, manufactures and
markets a variety of medical devices for cardiovascular
applications.
1. Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid temporary investments with
an original maturity of three months or less to be cash
equivalents.
At September 30, 1995, the Company's cash included approximately
$7,900,000 in U.S. Treasury Bills maturing at various dates
through December 21, 1995 and approximately $10,600,000 in an
institutional money market account. The balance of the Company's
cash at September 30, 1995 is in demand deposit accounts at a
bank.
At September 30, 1994 the Company's short-term investments consist
of certificates of deposit with various maturity dates and are
carried at amortized cost. Additionally, at September 30, 1994,
included in cash are approximately $2,966,000 of debt instruments
carried at amortized cost. Amortized cost of all of these
investments approximates fair value, and there are no realized or
unrealized gains or losses as of September 30, 1994.
2. Revenue Recognition and Customers
The Company recognizes revenue upon the shipment of completed
products. The Company sells and extends credit to hospitals,
domestic and foreign sales distributors, and domestic and foreign
equipment manufacturers. At September 30, 1995 and 1994 the
allowance for doubtful accounts was $32,764 and $18,937,
respectively.
3. Inventories
Inventories consist of material, labor and manufacturing overhead
and are stated at the lower of cost, determined by the first-in,
first-out method, or market.
4. Depreciation and Amortization
Property is depreciated using primarily the straight-line method
for financial reporting purposes over the following estimated
useful lives:
Machinery and equipment 3 - 7 years
Furniture and fixtures 3 - 7 years
Tooling 3 years
Accelerated methods of depreciation are used for income
tax purposes.
Leasehold improvements are amortized over the shorter of the
lease term or the useful life of the improvement.
5. Earnings Per Share
Earnings per share is based on the weighted average common
shares outstanding.
All common stock share and earnings per share information has
been restated to reflect two-for-one stock splits completed
January 20, 1994 and March 9, 1995. The par value continues to
be $.01 per share.
NOTE B - LINE OF CREDIT
The Company has a $4,000,000 revolving line of credit agreement
with a commercial bank. Interest on borrowings under this
agreement is payable monthly at the reference rate of the bank.
Borrowings under the agreement are payable on demand.
At September 30, 1995 and 1994 the Company had no borrowings
outstanding under its revolving line of credit.
NOTE C - INCOME TAXES
The Company follows the liability method of computing deferred
income taxes. The liability method provides that deferred tax
assets and liabilities are recorded based on the differences
between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred
income taxes were not significant at September 30, 1995 or
1994.
The components of income tax expense is as follows for the
years ended September 30:
1995 1994 1993
Current
Federal $ 3,720,648 $ 3,051,891 $ 2,545,134
State 339,700 319,000 176,034
$ 4,060,348 $ 3,370,891 $ 2,721,168
A reconciliation of the federal statutory income tax rate to
the effective income tax rate is as follows:
Years Ended September 30,
1995 1994 1993
Statutory federal income
tax rate 34% 34% 34%
State income taxes, net of
federal benefit 2 2 2
Income tax credits (1) (1) (2)
Recognition of net operating loss (4) (3) -
Foreign sales (2) (1) -
29% 31% 34%
As of September 30, 1995, the benefit related to the
recognition of net operating loss carryforwards has been fully
utilized.
<PAGE>
NOTE C - INCOME TAXES (continued)
In connection with the exercise of stock options and issuance
of common stock in 1993 the Company recognized an income tax
benefit of $517,368 which reduced income taxes payable and has
been added to additional paid-in capital.
The Company's federal income tax returns for fiscal 1993 and
1994 are currently being examined by the Internal Revenue
Service ("IRS"). In the revenue agent's draft report forwarded
to Daig Corporation for comment on November 10, 1995, the
Company has been advised the IRS may propose an adjustment to
the Company's tax returns for 1993 and 1994 relating to
accumulated earnings tax. The Company is currently preparing
a response for the IRS to consider before finalizing their
examination. This response will oppose the potential proposed
adjustment. Should the IRS ultimately propose an accumulated
earnings tax, management believes such proposed tax would be
without merit and expects to successfully defend its position.
No other material adjustments are currently proposed by the
IRS.
NOTE D - COMMON STOCK OPTIONS
Stock option activity is summarized as follows:
Options Option Price
Outstanding Per Share
Balance at October 1, 1992 1,396,000 $ .20-.36
Exercised (1,396,000) .20-.36
Granted 280,000 4.75
Balance at September 30, 1993 280,000 4.75
Canceled (280,000) 4.75
Balance at September 30, 1994 - -
Granted 160,000 13.75
Exercised (32,000) 13.75
Balance at September 30, 1995 128,000 13.75
At September 30, 1995, a non-qualified stock option for the
purchase of 128,000 shares of common stock was outstanding to
an individual who is an officer and director of the Company.
The stock option is exercisable in four remaining equal
increments beginning March 1, 1996 and expires March 1, 2001.
In connection with the stock option exercise on March 1, 1995,
the Company issued 32,000 shares of its common stock in
exchange for a $440,000 non-interest bearing promissory note
collateralized by the stock acquired.
NOTE E - RELATED PARTY TRANSACTIONS AND SALES TO SIGNIFICANT
CUSTOMERS
Daig purchases certain of its raw materials from a company
controlled by the family of Daig's chairman and sells certain
of its finished products to that company. During the years
ended September 30, 1995, 1994 and 1993, Daig purchased a total
$2,059,246, $1,732,000 and $1,541,531, respectively, from this
company and had sales to this company of $695,743, $607,587 and
$607,582, respectively.
In fiscal year 1995, 1994, and 1993 there were no customers
with 10% or more of total sales. Export sales accounted for
approximately 25% of net sales in each of the last three fiscal
years. The majority of these export sales were to countries in
the European region.
Included in Accounts Receivable - Other as of September 30,
1995 and 1994 are non-interest bearing notes receivable which
are due on demand totalling $108,055 and $156,055,
respectively. These notes represent loans to two employees who
are officers and directors of the Company.
NOTE F - COMMITMENTS AND CONTINGENCIES
Insurance
The Company maintains third party insurance coverages for
certain insurable risks, including property, casualty, workers'
compensation and business interruption. The Company does not
maintain other third party insurance and is self-insured for
product liability risks.
Lease Activity
The Company leases its administrative offices and production
facilities. The leases provide that, in addition to rent, the
Company is required to pay the real estate taxes, maintenance,
insurance and utilities associated with the properties. Rent
expense for the years ended September 30, 1995, 1994 and 1993
was $685,457, $626,206 and $584,793, respectively. Minimum
lease commitments as of September 30, 1995 are as follows:
$484,373 in 1996, $500,476 in 1997, $503,000 in 1998, $154,333
in 1999.
NOTE G - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standards (SFAS) 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which establishes guidance
for when to recognize and how to measure impairment losses of
long-lived assets and certain identifiable intangibles, and how
to value long-lived assets to be disposed of. SFAS 121 is
effective for fiscal years beginning after December 15, 1995.
Management has not determined when it will adopt this
Statement, but believes such adoption will not have a material
effect on the Company's financial position or results of
operations.
Additionally, the FASB has issued SFAS 123, Accounting for
Stock-Based Compensation, which establishes financial
accounting and reporting standards for stock-based employee
compensation plans. This Statement defines and encourages the
use of a fair value based method of accounting for an employee
stock option or similar equity instrument. However, the Statement also
allows the use of the intrinsic value based method of accounting as
prescribed by existing accounting standards. SFAS 123 is effective for
fiscal years beginning after December 15, 1995. Management has
not determined when it will adopt this Statement, and has not
determined which method of accounting for stock-based
compensation it will use. However, management believes the
adoption of this Statement will not have a material effect on
the Company's financial position or results of operations.
NOTE H - RECLASSIFICATIONS
Certain reclassifications of previously reported amounts have
been made to conform with current year presentation.
###END###
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
earnings on pages F-3 and F-4 of the company's Annual Report for the year ended
September 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 18,839
<SECURITIES> 0
<RECEIVABLES> 4,961
<ALLOWANCES> 0
<INVENTORY> 3,848
<CURRENT-ASSETS> 28,448
<PP&E> 12,683
<DEPRECIATION> 7,077
<TOTAL-ASSETS> 34,055
<CURRENT-LIABILITIES> 2,580
<BONDS> 0
<COMMON> 152
0
0
<OTHER-SE> 31,323
<TOTAL-LIABILITY-AND-EQUITY> 34,055
<SALES> 38,322
<TOTAL-REVENUES> 38,322
<CGS> 12,034
<TOTAL-COSTS> 12,034
<OTHER-EXPENSES> 3,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 13,959
<INCOME-TAX> 4,060
<INCOME-CONTINUING> 9,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,898
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
