UNITED STATES
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 December 31, 1995 Commission file number 09178
DAIG CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1245127
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
Registrant's telephone number, including area code (612) 933-4700
14901 DeVeau Place, Minnetonka, Minnesota 55345
Registrant's telephone number, including area code (612) 933-4700
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 (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 .
As of January 15, 1996, there were a total of 15,236,144 shares of common
stock outstanding which is the only class of securities of the Company.
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DAIG CORPORATION
INDEX
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
Condensed Statements of Earnings
Condensed Statement of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion And Analysis of
Financial Condition And Results of Operations
PART II. OTHER INFORMATION
SIGNATURES
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<TABLE>
DAIG CORPORATION
CONDENSED BALANCE SHEETS
(unaudited)
<CAPTION>
December 31, September 30,
1995 1995
<S> <C> <C>
CURRENT ASSETS
Cash $ 21,329,001 $ 18,839,199
Accounts receivable 5,197,861 5,354,170
Prepaid expenses and other 641,285 407,278
Inventories
Raw material 1,930,617 1,392,470
Work in progress 422,922 412,930
Finished goods 2,537,893 2,042,355
Total current assets 32,059,579 28,448,402
Property, plant and equipment 13,166,844 12,683,433
Accumulated depreciation and
amortization (7,344,521) (7,077,001)
Net property, plant and equipment 5,822,323 5,606,432
Total Assets $ 37,881,902 $ 34,054,834
CURRENT LIABILITIES
Income taxes payable $ 1,255,880 $ 75,839
Accounts payable and other
current liabilities 2,434,143 2,503,917
Total current liabilities 3,690,023 2,579,756
SHAREHOLDERS' EQUITY (Notes B
and C)
Common stock 152,362 152,362
Other shareholders' equity 34,039,517 31,322,716
34,191,879 31,475,078
Total Liabilities and Shareholders'
Equity $ 37,881,902 $ 34,054,834
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
DAIG CORPORATION
CONDENSED STATEMENTS OF EARNINGS
(unaudited)
<CAPTION>
Three Months Ended December 31,
1995 1994
<S> <C> <C>
NET SALES $ 10,118,789 $ 8,638,859
COST OF SALES 3,053,828 2,830,003
Gross profit 7,064,961 5,808,856
OPERATING EXPENSES:
Selling, general and administrative 2,520,385 2,307,884
Engineering and development 798,918 607,849
Total operating expenses 3,319,303 2,915,733
OPERATING PROFIT 3,745,658 2,893,123
INTEREST INCOME 309,268 147,616
EARNINGS BEFORE INCOME TAXES 4,054,926 3,040,739
PROVISION FOR INCOME TAXES 1,338,125 986,880
NET EARNINGS $ 2,716,801 $ 2,053,859
NET EARNINGS PER SHARE (Note B) $ .18 $ .14
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING DURING
THE PERIOD (Note B) 15,236,144 15,204,144
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
DAIG CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
October 1, October 1,
1995 through 1994 through
December 31, 1995 December 31, 1994
<S> <C> <C>
Increase (decrease) in cash
Net cash provided by operating activities $ 3,110,915 $ 2,438,209
Cash flows from investing activities:
Purchase of property, plant and
equipment (621,113) (262,912)
Proceeds from short-term investments - 2,139,277
Net cash provided (used) by
investing activities (621,113) 1,876,365
Net increase in cash 2,489,802 4,314,574
CASH at beginning of period 18,839,199 8,294,694
CASH at end of period $ 21,329,001 $ 12,609,268
The accompanying notes are an integral part of these statements.
</TABLE>
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DAIG CORPORATION
Notes to Condensed Financial Statements
Note A - Basis of Presentation
The accompanying unaudited condensed 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. They do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to financial statements included in the
Annual Report on Form 10-K of Daig Corporation (the "Company") for the year
ended September 30,1995.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended December 31, 1995 are
not necessarily indicative of the results that may be expected for the year
ending September 30, 1996.
Note B - Stock Split
On February 10, 1995, the Board of Directors approved a two-for-one split of
the common shares to be distributed on March 8, 1995 to holders of record on
February 24, 1995. All common shares and earnings per share data included in
the condensed financial statements have been adjusted to reflect the stock
split.
Note C - Income Taxes
The income tax footnote to financial statements included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1995, disclosed the
status of an Internal Revenue Service ("IRS") examination of the Company's
federal income tax returns for fiscal year 1993 and 1994.
In January 1996, the IRS completed its examination of the Company's 1994 and
1993 income tax returns with no material change to the returns as originally
filed.
Note D - Subsequent Event
On January 29, 1996 the Company and St. Jude Medical, Inc. ("St. Jude")
signed an Agreement and Plan of Merger (the "Agreement"). Terms of the
Agreement provide that each share of the Company's outstanding common stock
will be converted into the right to receive .651733 shares of St. Jude common
stock.
The merger will be accounted for as a "pooling of interests" and is intended
to qualify as a reorganization (tax-free to the shareholders of the Company)
under the provisions of Section 368(a) of the Internal Revenue Code. Pending
the clearance of appropriate regulatory filings, the Company has postponed its
Regular Meeting of Shareholders originally scheduled for April 12, 1996. The
Company's proxy statement will be amended to incorporate the information
necessary to request a shareholder vote on approval of the merger. The
Company's articles of incorporation require that, for approval, the holders of
a majority of the shares entitled to vote at a meeting must vote in favor of the
merger.
Note E - Reclassifications
Certain of the fiscal 1995 amounts have been reclassified to conform with
the financial statement presentation used in fiscal 1996.
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results of Operations.
(1)(2) Liquidity and Capital Resources
Net working capital increased by approximately $2,501,000 or 9.7% during the
first three months of fiscal year 1996. The cash component of working capital
increased approximately $2,490,000 due to the overall rise in sales volume.
Inventory increased approximately $1,044,000 during the first three months of
fiscal 1996. The increase reflects increases in finished goods of new items
within existing product lines and the timing of certain raw material purchases.
The income taxes payable component of working capital increased during the first
three months of fiscal 1996 by approximately $1,180,000, due primarily to the
timing of tax payments.
The Company had no borrowings outstanding on December 31, 1995 under a
$4,000,000 revolving line of credit. The line of credit is available to
supplement working capital needs.
As more fully described in Item 5., on January 29, 1995 the Company and St.
Jude Medical, Inc. ("St. Jude") signed an Agreement and Plan of Merger (the
"Agreement"). Terms of the Agreement provide that each share of the Company's
outstanding common stock will be converted into the right to receive .651733
shares of St. Jude common stock.
(3) Results Of Operations
Sales increased 17.1% in the three months ended December 31, 1995 compared
to the same period one year ago. Approximately sixty-five percent of the
Company's sales gain came from the domestic market while the remaining gain
reflected expansion of export sales. Daig's sales success during the first
quarter of fiscal year 1996, compared with the same period one year ago, was the
result primarily of an increase in unit volume sales of existing disposable
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 lines of electrophysiology catheters and percutaneous catheter
introducers.
Gross profit, as a percentage of sales, increased 2.6 percentage points to
69.8% for the three months ended December 31, 1995, versus the same period one
year ago. This change is equally attributed primarily to (1) continued
improvements 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 sales
declined 1.8 percentage points to 24.9% in the quarter ended December 31, 1995
as compared to 26.7% in the same period one year ago. The Company is receiving
return on its prior expansion of sales, marketing, and engineering activities
while it is continuing to invest in these areas to support further growth of the
business. Engineering and development expenses increased approximately $191,069
during the three months ended December 31, 1995, compared to the same period one
year ago. This increase reflects the Company's expanded clinical research and
other product development activities.
Interest Income increased during the quarter ended December 31, 1995,
reflecting the increased cash available to invest.
Management cautions against drawing conclusions about business trends on the
basis of quarterly or other interim results, and believes that operating results
must be viewed over a longer period.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On January 29, 1995, the Company and St. Jude Medical, Inc. ("St.
Jude") signed an Agreement and Plan of Merger (the "Agreement").
Terms of the Agreement provide that each share of the Company's
outstanding common stock will be converted into the right to receive
.651733 shares of St. Jude common stock. The Company will continue as
a wholly-owned subsidiary of St. Jude and operate as Daig Corporation,
a St. Jude Medical Company. Both the Company's Chairman and Chief
Executive Officer, John J. Fleischhacker, and the Company's President
and Chief Operating Officer, Daniel J. Starks, will continue to hold
the positions that they currently hold with the Company. In addition,
upon closing, Mr. Starks will be appointed to the St. Jude Board of
Directors. The merger will be accounted for as a "pooling of
interests" and is intended to qualify as a reorganization (tax-free
to the shareholders of the Company) under the provisions of Section
368(a) of the Internal Revenue Code. Pending the clearance of
appropriate regulatory filings, the Company has postponed its Regular
Meeting of Shareholders originally scheduled for April 12, 1996. The
Company's proxy statement will be amended to incorporate the
information necessary to request a shareholder vote on approval of the
merger. The Company's articles of incorporation require that, for
approval, the holders of a majority of the shares entitled to vote at
a meeting must vote in favor of the merger.
Item 6. Exhibits and Reports of Form 8-K
(a) Listings of Exhibits:
2.1 Agreement and Plan of Merger, dated January 29, 1996, among St.
Jude Medical, Inc., Partner Acquisition Corp. and the Company.
(Incorporated by reference to Exhibit 2.1 of the St. Jude
Medical, Inc. Schedule 13D filed on February 7, 1996.)
2.2 Shareholders Agreement, dated as of January 29, 1996, by and
between St. Jude Medical, Inc., the Company, John J.
Fleischhacker and Daniel J. Starks. (Incorporated by reference
to Exhibit 2.2 of the St. Jude Medical, Inc. Schedule 13D filed
on February 7, 1996.)
3.1 Articles of Incorporation of the Company, as amended to date.
(Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1993.)
3.2 Restated Bylaws of the Company as of May 21, 1993. (Incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1993.)
27.1 Financial Data Schedule. (Filed herewith.)
99.1 Press Release dated January 30, 1996. (Incorporated by reference
to Exhibit 99.1of the St. Jude Medical, Inc. Current Report on
Form 8-K dated January 29, 1996.)
(b) Reports on Form 8-K:
None.
<PAGE>
Signatures
Pursuant to the requirements 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 February 13, 1996 By: John J. Fleischhacker
Chairman and Chief Executive Officer
Date February 13, 1996 By: Daniel J. Starks
President and Chief Operating Officer
Date February 13, 1996 By: John C. Heinmiller
Vice President Finance and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed Statements of Earnings and condensed Balance Sheets on pages 3-4 of
the Company's interim report for the period ended December 31, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 21,329
<SECURITIES> 0
<RECEIVABLES> 5,198
<ALLOWANCES> 0
<INVENTORY> 4,891
<CURRENT-ASSETS> 32,060
<PP&E> 13,167
<DEPRECIATION> 7,345
<TOTAL-ASSETS> 37,882
<CURRENT-LIABILITIES> 3,690
<BONDS> 0
<COMMON> 152
0
0
<OTHER-SE> 34,040
<TOTAL-LIABILITY-AND-EQUITY> 37,882
<SALES> 10,119
<TOTAL-REVENUES> 10,119
<CGS> 3,054
<TOTAL-COSTS> 3,054
<OTHER-EXPENSES> 799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,055
<INCOME-TAX> 1,338
<INCOME-CONTINUING> 2,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,717
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
