UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction 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
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 .
Shares of common stock outstanding on April 30, 1996:
15,236,144
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DAIG CORPORATION
INDEX
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
Condensed Statements of Earnings
Condensed Statements of Cash Flows
Notes to Condensed 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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DAIG CORPORATION
CONDENSED BALANCE SHEETS
(unaudited)
March 31, September 30,
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash $21,358,364 $18,839,199
Accounts receivable 5,114,106 5,354,170
Prepaid expenses and other 1,021,373 407,278
Inventories
Raw material 2,111,749 1,392,470
Work in progress 559,556 412,930
Finished goods 3,249,476 2,042,355
Total current assets 33,414,624 28,448,402
Property, plant and equipment 13,736,454 12,683,433
Accumulated depreciation and
amortization (7,630,386) (7,077,001)
Net property, plant and equipment 6,106,068 5,606,432
Total Assets $39,520,692 $34,054,834
CURRENT LIABILITIES
Income taxes payable $ - $ 75,839
Accounts payable and other
current liabilities 2,621,470 2,503,917
Total current liabilities 2,621,470 2,579,756
SHAREHOLDERS' EQUITY
Common stock 152,362 152,362
Other shareholders' equity 36,746,860 31,322,716
36,899,222 31,475,078
Total Liabilities and
Shareholders' Equity $39,520,692 $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)
Three Months Ended March 31,
1996 1995
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NET SALES $10,927,155 $9,521,558
COST OF SALES 3,547,030 3,137,858
Gross profit 7,380,125 6,383,700
OPERATING EXPENSES:
Selling, general and administrative 2,976,096 2,516,168
Engineering and development 638,896 627,338
Total operating expenses 3,614,992 3,143,506
OPERATING PROFIT 3,765,133 3,240,194
INTEREST INCOME, INTEREST
EXPENSE, AND OTHER 275,678 169,085
EARNINGS BEFORE INCOME TAXES 4,040,811 3,409,279
PROVISION FOR INCOME TAXES 1,333,468 1,115,868
NET EARNINGS $ 2,707,343 $ 2,293,411
NET EARNINGS PER SHARE $ .18 $ .15
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THIS PERIOD 15,236,144 15,215,166
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
DAIG CORPORATION
CONDENSED STATEMENTS OF EARNINGS
(unaudited)
October 1, October 1,
1995 through 1994 through
March 31, 1996 March 31, 1995
<S> <C> <C>
NET SALES $21,045,944 $18,160,417
COST OF SALES 6,600,858 5,967,861
Gross profit 14,445,086 12,192,556
OPERATING EXPENSES:
Selling, general and administrative 5,496,481 4,824,052
Engineering and development 1,437,814 1,235,187
Total operating expenses 6,934,295 6,059,239
OPERATING PROFIT 7,510,791 6,133,317
INTEREST INCOME, INTEREST
EXPENSE, AND OTHER 584,946 316,701
EARNINGS BEFORE INCOME TAXES 8,095,737 6,450,018
PROVISION FOR INCOME TAXES 2,671,593 2,102,748
NET EARNINGS $ 5,424,144 $ 4,347,270
NET EARNINGS PER SHARE $ .36 $ .29
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
DURING THIS PERIOD 15,236,144 15,209,655
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
DAIG CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
October 1, October 1,
1995 through 1994 through
March 31, 1996 March 31, 1995
<S> <C> <C>
Increase (decrease) in cash
Net cash provided by operating activities $ 3,523,733 $ 5,441,516
Cash flows from investing activities:
Purchase of property, plant and
equipment (1,277,964) (686,017)
Proceeds from disposal of property and
equipment 273,396 250,000
Proceeds from short-term investments - 3,139,277
Net cash provided (used) by
investing activities (1,004,568) 2,703,260
Net increase in cash 2,519,165 8,144,776
CASH at beginning of period 18,839,199 8,294,694
CASH at end of period $21,358,364 $16,439,470
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
and six months ended March 31, 1996 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 "Merger
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 has scheduled a Special Meeting of Shareholders for May
30, 1996 to consider and vote on the Merger Agreement. The
Company's Proxy Statement for the Special Meeting was first
mailed to shareholders on May 1, 1996.
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. At the close
of business on April 26, 1996, the record date for the Special
Meeting, directors and executive officers of Daig, in the
aggregate, were entitled to vote 8,370,800 shares of Daig Common
Stock, representing approximately 54.9% of the total shares
entitled to vote at the Special Meeting. Daig expects that such
directors and executive officers will vote all of such shares for
approval of the Merger Agreement; to the extent that such
directors and executive officers vote in accordance with Daig's
expectations, approval of the Merger Agreement is assured.
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.
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 $4,925,000 or
19% during the first six months of fiscal year 1996. The cash
component of working capital increased approximately $2,519,000
due to the overall rise in sales volume. Inventory increased
approximately $2,073,000 during the first six months of fiscal
1996. The increase reflects the timing of certain raw material
purchases and steps taken to launch and support new products
without back order problems.
The Company had no borrowings outstanding on March 31, 1996
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 Note D, 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.
(3) Results Of Operations
Sales increased 15% and 16%, respectively in the three and
six months ended March 31, 1996 compared to the same period one
year ago. Approximately seventy-three 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 two quarters 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 products 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 electrophysiology catheters and
percutaneous catheter introducers.
Gross profit, as a percentage of sales, increased 1.5
percentage points to 68.6% for the six months ended March 31,
1996, versus the same period one year ago. This change is
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 .5 percentage points to 26.1% in the six months
ended March 31, 1996 as compared to 26.6% in the same period one
year ago. The Company is receiving return on its prior expansion
of sales and marketing activities while it is continuing to
invest in these areas to support further growth of the business.
Engineering and development expenses increased approximately
$203,000 during the six months ended March 31, 1996, 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 six months ended March
31, 1996, 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
None.
Item 6. Exhibits and Reports of Form 8-K
(a)Listings of exhibits:
None.
(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 May 3, 1996 By /s/ John J. Fleischhacker
Chairman and Chief Executive Officer
Date May 3, 1996 By /s/ Daniel J. Starks
President and Chief Operating Officer
Date May 3, 1996 By /s/ John C. Heinmiller
Vice President, Finance and
Administration
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed Statements of Earnings and condensed Balance Sheets of the Company's
interim report for the period ended March 31, 1996, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,358
<SECURITIES> 0
<RECEIVABLES> 5,114
<ALLOWANCES> 0
<INVENTORY> 5,921
<CURRENT-ASSETS> 33,415
<PP&E> 13,736
<DEPRECIATION> 7,630
<TOTAL-ASSETS> 39,521
<CURRENT-LIABILITIES> 2,621
<BONDS> 0
<COMMON> 152
0
0
<OTHER-SE> 36,747
<TOTAL-LIABILITY-AND-EQUITY> 39,521
<SALES> 21,046
<TOTAL-REVENUES> 21,046
<CGS> 6,601
<TOTAL-COSTS> 6,601
<OTHER-EXPENSES> 1,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,096
<INCOME-TAX> 2,672
<INCOME-CONTINUING> 5,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,424
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
