-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tkofN/eDvYnDko1fmbNcUWJufGM9iXFFiQ0qHmC3daylehLZRXWT3+VHtbzqV3Am 6btgw3RGHlp1UnDToAcZuQ== 0000024654-94-000003.txt : 19940427 0000024654-94-000003.hdr.sgml : 19940427 ACCESSION NUMBER: 0000024654-94-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940426 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORDIS CORP CENTRAL INDEX KEY: 0000024654 STANDARD INDUSTRIAL CLASSIFICATION: 3841 IRS NUMBER: 590870525 STATE OF INCORPORATION: FL FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03274 FILM NUMBER: 94524393 BUSINESS ADDRESS: STREET 1: 14201 NW 60 AVE CITY: MIAMI LAKES STATE: FL ZIP: 33014 BUSINESS PHONE: 3058242000 MAIL ADDRESS: STREET 1: 14201 N W 60TH CITY: MIAMI LAKES STATE: FL ZIP: 33014 10-Q 1 SEC FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 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 0-3274 CORDIS CORPORATION (Exact name of registrant as specified in its charter) FLORIDA 59-0870525 (State or other jurisdiction of (I.R.S. Employer Identifi- incorporation or organization) cation Number) 14201 N.W. 60th Avenue, Miami Lakes, Florida 33014 (Address of principal executive offices) (Zip Code) (305) 824-2000 (Registrant's telephone number, including area code) No Changes (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 (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 The registrant had outstanding 14,404,738 shares of common stock (par value $1.00 per share) as of April 22, 1994. CORDIS CORPORATION FORM 10-Q THREE MONTHS ENDED MARCH 31, 1994 INDEX Page No. PART I. FINANCIAL INFORMATION: Item 1. Financial Statements ........................ 1 Consolidated Statements of Operations........ 2 Consolidated Balance Sheets ................. 3 Consolidated Statements of Cash Flows ....... 4 Notes to Consolidated Financial Statements .. 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 7-10 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K............. 10 Signature .................................................. 10 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The interim financial information herein is unaudited. However, in the opinion of Management, such information reflects all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the information shown. The financial statements and notes presented herein do not contain certain information included in the Company's annual financial statements and notes. Results for interim periods are not necessarily indicative of results expected for the full year. CORDIS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Months and Nine Months Ended March 31, 1994 and 1993 (Unaudited) (Dollars in thousands except per share amounts) Three Months Nine Months 1994 1993 1994 1993 Net Sales $85,043 $ 64,219 $229,589 $188,705 Operating costs and expenses: Cost of goods sold 33,474 26,588 91,239 74,260 Research and development 6,325 4,596 17,465 14,616 Selling, general and administrative 29,797 21,935 79,700 66,891 Total operating costs and expenses 69,596 53,119 188,404 155,767 Operating profit 15,447 11,100 41,185 32,938 Other (income) deductions: Interest expense, net and other (548) 1,171 (1,524) 4,698 Income before income taxes and cumulative effect of accounting change 15,995 9,929 42,709 28,240 Provision for income taxes 6,059 2,186 16,274 7,526 Income before cumulative effect of accounting change 9,936 7,743 26,435 20,714 Cumulative effect of accounting change - - 10,115 - Net income $ 9,936 $ 7,743 $ 36,550 $ 20,714 Earnings per share: Income before cumulative effect of accounting change $ .67 $ .53 $ 1.80 $ 1.42 Cumulative effect of accounting change - - .69 - Net income $ .67 $ .53 $ 2.49 $ 1.42 See accompanying notes. CORDIS CORPORATION CONSOLIDATED BALANCE SHEETS March 31, 1994 and June 30, 1993 (Dollars in thousands) March 31 June 30 ASSETS (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 41,741 $ 38,406 Marketable securities, at cost 6,969 - Accounts receivable, net 71,929 58,369 Inventories: Finished goods 22,365 18,506 Work-in-process 11,096 9,213 Raw materials and supplies 9,266 7,002 42,727 34,721 Deferred income taxes 9,893 3,564 Other current assets 4,981 7,583 Total current assets 178,240 142,643 Property, plant and equipment, net of accumulated depreciation of $59,785 at March 31 and $53,801 at June 30 63,906 57,097 Deferred income taxes 8,410 663 Other assets 6,793 3,888 $ 257,349 $ 204,291 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 5,459 $ 9,092 Accounts payable 9,216 5,846 Accrued expenses 39,657 31,087 Income taxes payable 7,793 3,753 Current portion of long-term debt 820 903 Net liabilities of discontinued operations 867 988 Other current liabilities 228 3,900 Total current liabilities 64,040 55,569 Long-term liabilities: Long-term debt 1,476 1,112 Net liabilities of discontinued operations 3,069 3,484 Other long-term liabilities 3,964 3,497 Total long-term liabilities 8,509 8,093 Total liabilities 72,549 63,662 Commitments and contingencies (Note 3) Shareholders' equity: Common stock, $1 par value; authorized 50,000,000 shares; issued and outstanding 14,402,395 shares at March 31 and 14,271,545 shares at June 30 14,402 14,272 Capital in excess of par value 65,933 58,246 Retained earnings 99,146 62,596 Foreign currency translation adjustments 5,319 5,515 Total shareholders' equity 184,800 140,629 $ 257,349 $ 204,291 See accompanying notes. CORDIS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1994 and 1993 (Unaudited) (Dollars in thousands) 1994 1993 Cash flows from operating activities: Net income $ 36,550 $ 20,714 Noncash items included therein: Cumulative effect of accounting change (10,115) - Depreciation and amortization 6,958 6,548 Deferred income tax provision 2,894 130 Provisions for inventory obsolescence and doubtful accounts 1,065 1,721 Loss on disposition of property, plant and equipment 64 77 Currency transaction losses 906 2,310 Changes in assets and liabilities: Increase in accounts receivable (15,263) (9,462) Increase in inventories (8,636) (6,344) Increase in other current assets (1,038) (618) Increase in other assets (1,373) (360) Increase in accounts payable and accruals 13,538 8,535 Increase (decrease) in current and deferred income taxes payable, net 2,820 (3,492) Decrease in net liabilities of discontinued operations (536) (394) Other, net 363 2,441 Net cash provided by operating activities 28,197 21,806 Cash flows from investing activities: Additions to property, plant and equipment (13,682) (8,711) Purchases of marketable securities and other investments (8,969) - Proceeds from the sale of property, plant and equipment 244 46 Net cash used in investing activities (22,407) (8,665) Cash flows from financing activities: Bank loans 1,320 939 Debt retirement (4,628) (899) Proceeds from the sale of common stock 1,931 6,272 Repurchase of common stock (1,100) - Net cash (used in) provided by financing activities (2,477) 6,312 Effect of exchange rate changes on cash 22 (230) Increase in cash and cash equivalents 3,335 19,223 Cash and cash equivalents: Beginning of period 38,406 13,146 End of period $ 41,741 $ 32,369 See accompanying notes. CORDIS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1) Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. The cumulative effect on prior periods of this accounting change of $10.1 million, or $.69 per share, is reported as a one time benefit in the Consolidated Statement of Operations for the nine months ended March 31, 1994. In addition, a one time adjustment of $4.2 million was recorded to capital in excess of par value in the Consolidated Balance Sheet as of March 31, 1994 due to the income tax benefits derived from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options. SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Previously, the Company used the SFAS No. 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The tax effect of the significant temporary differences which comprised the deferred tax assets and liabilities at July 1, 1993 was as follows (in thousands): Assets: Discontinued operations $ 5,214 Intercompany profit adjustments in inventories and other assets 3,152 Foreign, general business and AMT tax credits 4,861 Other accrued expenses 3,561 Net operating loss carryforwards 3,351 Asset valuation reserves 1,870 Depreciation 1,322 Employee benefits 1,099 Other 60 24,490 Valuation allowance (3,338) Total deferred tax assets 21,152 Liabilities: Employee benefit plans (594) Other (248) Total deferred tax liabilities (842) Net Deferred Tax Asset $20,310 The valuation allowance relates primarily to net operating loss carryforwards of the Company's French subsidiary. As of June 30, 1993 the French subsidiary had a net operating loss carryforward of approximately $9,200,000. Due to the adoption of SFAS No. 109, the Company's effective income tax rate for its year ending June 30, 1994 will approximate the statutory rates of the countries in which it operates. The Company's effective income tax rate was 38% in each of the three and nine month periods ended March 31, 1994. Included in the provision for income taxes in the Consolidated Statement of Operations for the nine months ended March 31, 1994 is a one time benefit related to the Company increasing its net deferred tax asset by approximately $400,000, or $0.03 per share, as a result of legislation enacted in August 1993 increasing the U.S. corporate tax rate from 34% to 35%. As permitted under SFAS No. 109, prior years' financial statements have not been restated. For the three and nine month periods ended March 31, 1993, the provision for income taxes was based on the U.S. statutory rate of 34%, adjusted for foreign tax rate differentials, and the tax benefit of the utilization of tax credits of $1,400,000 and $3,900,000, respectively. 2) Primary earnings per share of common stock have been determined on the basis of the average number of shares of common stock and common stock equivalents outstanding during the respective periods. The exercise of outstanding options, computed under the treasury stock method based upon average stock prices during the period, has been included in the computation when dilutive. The computation of fully diluted earnings per share results in no material dilution. 3) During fiscal 1987, the Company initiated a plan to dispose of all businesses other than its angiographic and neuroscience product lines. This plan included the disposal of the worldwide cardiac pacing operations, of which the Administrative and Technical Center ("ATC") in Miami, Florida was a principal asset. ATC is held under a capitalized lease that expires in December 2005. In September 1991, the Company executed an agreement to sublease ATC for a term equal to the remaining term of the capital lease. The sublease gives the sublessee cancellation options at the end of the fifth and tenth years, and an option to extend the lease for five years or to purchase the facility at December 31, 2005 The assets and liabilities related to ATC have been classified in the balance sheets as net liabilities of discontinued operations, and are reflected below in thousands: March 31, June 30, 1994 1993 Net property, plant and equipment $ 18,074 $ 19,467 Other assets 1,319 1,353 Liabilities (16,823) (17,380) Reserve for future costs (6,506) (7,912) (3,936) (4,472) Amount included in current liabilities 867 988 Net liabilities - non-current $ (3,069) $ (3,484) The reserve for future costs relates principally to the discounted shortfall in rental income from the sublease compared to the Company's underlying payments and other costs over the full term of the capitalized lease. 4) In April 1993, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of the Company's outstanding common stock. Repurchases will be made from time to time in the open market or private transactions, including block trades, with the number of shares actually to be purchased and the price the Company will pay dependent upon market conditions. Repurchased shares will be made available for use in employee benefit and incentive plans. The Company repurchased 37,000 shares of its common stock with a value of $1.1 million during the first quarter ended September 30, 1993. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources During the nine months ended March 31, 1994, operations generated cash of approximately $28.2 million compared to $21.8 million in the same period last year. The $6.4 million increase was principally caused by increased cash collections on higher sales, offset to a certain extent by increased cash payments for incremental operating expenses. Net cash used in investing activities increased to $22.4 million from $8.7 million a year ago; in addition to a $5 million increase in additions to property, plant and equipment, $9.0 million was spent on purchases of marketable securities and other investments of which $7.0 million was short-term in nature, and $2.0 million long-term, included in other assets. Higher net retirement of debt, principally short- term borrowings in Europe, and lower proceeds from the sale of stock options caused cash of $2.5 million to be used in financing activities for the nine months ended March 31, 1994 compared to a net increase in cash of $6.3 million in the year-earlier period. Between June 30 and March 31, the current ratio increased to 2.8 from 2.6 and the long-term debt to equity ratio remained constant at approximately zero. Working capital was $114.2 million at March 31, 1994; the $27.1 million increase from June 30, 1993 was principally due to increased cash and accounts receivable balances associated with the increase in sales and higher inventory due to production levels increasing to meet the demand for the Company's products. The Company has a $25 million line of credit and a $2 million letter of credit facility with a U.S. bank. No borrowings were outstanding under the agreement either at March 31, 1994 or June 30, 1993. In addition, the Company continues its policy of borrowing funds in Europe to provide financing of local receivables and to partially hedge its foreign currency positions. At March 31, 1994 such loans totaled $5.5 million compared to $9.1 million at June 30, 1993. Management anticipates that cash generated from operations during the remainder of the fiscal year and cash and marketable securities on hand, combined, if necessary, with the utilization of credit lines in the U.S. and Europe, will be sufficient to meet the Company's current operating requirements, and to cover the shortfall in rental income from the sublease of ATC compared to the underlying lease payments over the lease term. On a long-term basis, management will continue to address the Company's liquidity requirements and implement necessary financing strategies. Net Sales For the three and nine months ended March 31, 1994, net sales were $85.0 million and $229.6 million, respectively, up $20.8 million (32%) and $40.9 million (22%) from the same periods last year. The increases in sales for both the three and nine month periods were principally due to increased sales volumes of the Company's interventional angiographic products. Foreign sales, which also benefited from the increased interventional angiography sales volumes, increased by $13.7 million (37%) and $25.3 million (24%), respectively, and accounted for 59% of total sales for the current quarter. Had currency exchange rates remained constant throughout the periods, the increases in foreign sales would have been 46% and 38%, respectively. Sales of angiographic products were $80.6 million and $217.5 million, respectively, for the three and nine months ended March 31, 1994, which represented increases over the prior year of $20.4 million (34%) and $41.8 million (24%), respectively. Sales of neuroscience products increased $0.4 million (11%) in the current quarter and decreased $0.9 million (7%) in the nine month period. Operating Costs and Expenses Cost of goods sold expressed as a percent of sales was 39% and 40%, respectively, in the three and nine months ended March 31, 1994 compared to 41% and 39% of sales in the corresponding periods of the prior fiscal year. The increase in profitability in the current quarter was principally due to lower unit angiographic product costs in the current fiscal year as a result of increased production volumes worldwide and the beneficial effect upon margins of increased worldwide angioplasty sales which carry higher than average profit margins. Offsetting these favorable effects to a certain extent were higher royalty expenses in fiscal year 1994 due to increased sales of PTCA balloon catheters; such sales more than tripled in the three months ended March 31, 1994, and accounted for 24% of worldwide angiographic products sales compared to 10% a year ago. The decrease in profitability for the nine-month period was principally due to a $1.6 million charge with respect to a license agreement with C.R. Bard for the license of PTCA balloon catheter technology, of which $1.3 million related to the period from May 1991 to June 1993. Research and development expenses for the three and nine months ended March 31, 1994 were $6.3 million and $17.5 million, respectively, increases of $1.7 million (38%) and $2.8 million (19%) from the prior year. The increases in research and development expenses were principally due to increased spending in the U.S. on the development of interventional angiography and other products. Expressed as a percent of sales, research and development expenses were 7% and 8% in the respective three and nine month periods ended March 31 for both fiscal years. Selling, general and administrative expenses for the three and nine months ended March 31, 1994 were $29.8 million and $79.7 million respectively, up $7.9 million (36%) and $12.8 million (19%) from the corresponding periods of last year. The increases in selling, general and administrative expenses were principally due to higher legal expenses, higher reserves for uncollectible accounts receivable, and increased employee related costs, promotional and travel expenses due to higher sales and the expansion of the U.S. and European marketing organizations. However, favorable currency exchange rate effects in Europe partially offset these factors. If currency rates had remained constant throughout the periods, selling, general and administrative expenses would have increased 41% and 26%, respectively, over last year. Expressed as a percent of sales, selling, general and administrative expenses were 35% in each of the current periods, compared to 34% and 35% for the three and nine month periods last year. Interest Expense, Net and Other Interest and other income, net increased by $1.7 million and $6.2 million, respectively, in the three and nine months ended March 31, 1994. The increases were principally due to lower reserves for uncollectible investments and other issues which did not recur in fiscal 1994, and lower currency transaction losses related to inventory purchases in the nine-month period. Income Taxes The consolidated effective income tax rate was 38% in each of the three and nine months ended March 31, 1994, compared to 22% and 27% in the corresponding prior year periods. The increases in the effective rates were caused by the adoption of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" at the beginning of the current fiscal year (see Note 1 of Notes to Consolidated Financial Statements). Cumulative Effect of Accounting Change As stated in the preceding paragraph, and as more fully explained in Note 1 of Notes to Consolidated Financial Statements, the Company adopted SFAS No. 109 on July 1, 1993. The effect of the adoption was reflected as a one time benefit of $10.1 million ($0.69 per share) in the Consolidated Statement of Operations under the caption "Cumulative Effect of Accounting Change" in the first quarter of fiscal 1994. Net Income Income before the cumulative effect of an accounting change for the three and nine months ended March 31, 1994 was $9.9 million ($0.67 per share) and $26.4 million ($1.80 per share), respectively, compared to $7.7 million ($0.53 per share) and $20.7 million ($1.42 per share) in the prior year periods. Net income for the three and nine months ended March 31, 1994 was $9.9 million ($0.67 per share) and $36.6 million ($2.49 per share), respectively, compared to $7.7 million ($0.53 per share) and $20.7 million ($1.42 per share) in the prior year periods. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibit 11 Computation of primary earnings per share. b) A report on Form 8-K was filed on January 20, 1994 as to: Item 5. The signing of a definitive agreement to acquire Webster Laboratories, Inc. ("Webster") in a stock-for-stock transaction. The transaction is structured as a tax-free reorganization of Webster, and is expected to be accounted for as a pooling of interests. SIGNATURE 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. CORDIS CORPORATION By: Alfred J. Novak, Vice President, Treasurer and Chief Financial Officer (principal financial officer) Date: April 25, 1994 EX-11 2 EPS EXHIBIT Exhibit 11 CORDIS CORPORATION COMPUTATION OF PRIMARY EARNINGS PER SHARE Three Months and Nine Months Ended March 31, 1994 and 1993 (Unaudited) (Dollars in thousands except per share amounts) Three Months Nine Months 1994 1993 1994 1993 Income before cumulative effect of accounting change $ 9,936 $ 7,743 $ 26,435 $20,714 Cumulative effect of accounting change - - 10,115 - Net income $ 9,936 $ 7,743 $ 36,550 $20,714 Common shares (000): Weighted average common shares outstanding 14,367 14,426 14,317 14,274 Equivalent shares from outstanding options (1) 431 247 364 289 Total 14,798 14,673 14,681 14,563 Earnings per share: Income before cumulative effect of accounting change $ .67 $ .53 $ 1.80 $ 1.42 Cumulative effect of accounting change - - .69 - Net income $ .67 $ .53 $ 2.49 $ 1.42 (1) Computed using the treasury stock method based on the average price during the periods. NOTE: The computation of earnings per share on the fully diluted basis is the same as that set forth above. -----END PRIVACY-ENHANCED MESSAGE-----