-----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, XAhjVIQvgrf9alYD6iDRogk7hgshf/bI9RbyCYO99lX/gaTYJ5FOFfJJBud0rWLu zR5vJE87WKP79Aeazw4aHQ== 0000024654-95-000004.txt : 19950501 0000024654-95-000004.hdr.sgml : 19950501 ACCESSION NUMBER: 0000024654-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950428 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORDIS CORP CENTRAL INDEX KEY: 0000024654 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [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: 95532357 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 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, 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 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 16,301,327 shares of common stock (par value $1.00 per share) as of April 21, 1995. CORDIS CORPORATION FORM 10-Q THREE MONTHS ENDED MARCH 31, 1995 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 .. 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 7-9 PART II. OTHER INFORMATION: Item 1. Legal Proceedings............................ 9 Item 5. Other Information............................ 10 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. Certain amounts in prior years have been reclassified to conform to the 1995 Consolidated Financial Statement presentation. Results for interim periods are not necessarily indicative of results expected for the full year. 1 CORDIS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Months and Nine Months Ended March 31, 1995 and 1994 (Unaudited) (Dollars in thousands except per share amounts) Three Months Nine Months 1995 1994 1995 1994 Net sales $117,980 $ 88,942 $321,355 $241,542 Operating costs and expenses: Cost of goods sold 48,079 34,517 127,083 94,449 Research and development 8,922 6,833 24,888 19,027 Selling, general and administrative 37,890 30,379 105,602 81,582 Total operating costs and expenses 94,891 71,729 257,573 195,058 Operating profit 23,089 17,213 63,782 46,484 Other deductions: Other expenses, net of interest income 738 232 1,020 609 Income before income taxes and cumulative effect of accounting change 22,351 16,981 62,762 45,875 Provision for income taxes 8,570 6,441 24,366 17,478 Income before cumulative effect of accounting change 13,781 10,540 38,396 28,397 Cumulative effect of accounting change - - - 10,115 Net income $ 13,781 $ 10,540 $ 38,396 $ 38,512 Earnings per share: Income before cumulative effect of accounting change $ .82 $ .63 $ 2.30 $ 1.72 Cumulative effect of accounting change - - - .61 Net income $ .82 $ .63 $ 2.30 $ 2.33 See accompanying notes. 2 CORDIS CORPORATION CONSOLIDATED BALANCE SHEETS March 31, 1995 and June 30, 1994 (Dollars in thousands) March 31 June 30 (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 87,912 $ 48,531 Short-term investments, at cost - 7,055 Accounts receivable, net 97,896 82,502 Inventories: Finished goods 33,933 25,770 Work-in-process 13,857 12,483 Raw materials and supplies 10,912 9,913 58,702 48,166 Deferred income taxes 11,893 10,350 Other current assets 7,877 5,942 Total current assets 264,280 202,546 Property, plant and equipment, net of accumulated depreciation of $76,918 at March 31, and $64,509 at June 30 84,214 71,247 Deferred income taxes 2,561 6,844 Other assets 7,610 7,490 $ 358,665 $ 288,127 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 10,107 $ 9,057 Accounts payable 15,792 10,916 Accrued expenses 52,697 47,692 Income taxes payable 6,397 5,245 Current portion of long-term debt 708 613 Total current liabilities 85,701 73,523 Long-term liabilities: Long-term debt 1,572 1,894 Other long-term liabilities 12,483 9,871 Total long-term liabilities 14,055 11,765 Total liabilities 99,756 85,288 Commitments and contingencies (Note 3) Shareholders' equity: Common stock, $1 par value; authorized 50,000,000 shares; issued and outstanding 16,298,170 shares at March 31 and 16,001,206 shares at June 30 16,298 16,001 Capital in excess of par value 69,560 62,016 Retained earnings 154,054 115,658 Foreign currency translation adjustments 18,997 9,164 Total shareholders' equity 258,909 202,839 $ 358,665 $ 288,127 See accompanying notes. 3 CORDIS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1995 and 1994 (Unaudited) (Dollars in thousands) 1995 1994 Cash flows from operating activities: Net income $ 38,396 $ 38,512 Noncash items included therein: Cumulative effect of accounting change - (10,115) Depreciation and amortization 9,198 7,240 Deferred income tax provision 4,372 2,630 Provisions for inventory obsolescence, doubtful accounts and other 2,948 1,138 Currency transaction losses 1,203 906 Changes in assets and liabilities: Increase in accounts receivable (13,091) (15,295) Increase in inventories (8,587) (9,221) Increase in other current assets (1,348) (1,174) Increase in other assets (54) (1,368) Increase in accounts payable and accruals 9,124 9,662 Increase in current and deferred income taxes payable, net 596 2,965 Other, net 1,887 2,520 Net cash provided by operating activities 44,644 28,400 Cash flows from investing activities: Additions to property, plant and equipment (17,117) (14,440) Purchases of short-term investments - (8,969) Proceeds from the sale of short-term investments 7,018 - Proceeds from the sale of property, plant and equipment 44 244 Net cash used in investing activities (10,055) (23,165) Cash flows from financing activities: Bank loans 433 1,320 Debt retirement (645) (4,628) Proceeds from the sale of common stock 3,717 1,957 Repurchase of common stock - (1,100) Net cash provided by (used in) financing activities 3,505 (2,451) Effect of exchange rate changes on cash 1,287 22 Increase in cash and cash equivalents 39,381 2,806 Cash and cash equivalents: Beginning of period 48,531 42,042 End of period $ 87,912 $ 44,848 See accompanying notes. 4 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 $.61 per share, is reported as a one time benefit in the Consolidated Statement of Operations for the nine months ended March 31, 1994. 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. 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%. 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. In 1994, the sublessee's parent sold the assets of the sublessee to an unrelated third party. The Company has been verbally notified that the sublessee intends to exercise its sublease cancellation option on December 31, 1996. The sublessee will accordingly be required to remit a cancellation payment. The Company believes that such cancellation payment, combined with the current reserve for future carrying costs, will be sufficient to cover the carrying costs of the building until a replacement tenant can be found. 5 The assets and liabilities related to ATC have been classified in the balance sheets as net liabilities of discontinued operations included in accrued expenses and other long-term liabilities, and are reflected below in thousands: March 31, June 30, 1995 1994 Net property, plant and equipment $ 16,647 $ 17,805 Other assets 1,267 1,307 Liabilities (16,013) (16,628) Reserve for future costs (7,803) (6,316) (5,902) (3,832) Amount included in current liabilities 757 842 Net liabilities - non-current $ (5,145) $ (2,990) 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. In anticipation of the potential cancellation of the sublease mentioned above, the Company increased the reserve balance in the first quarter of fiscal 1995. 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. During the three months ended September 30, 1993, the Company entered into commitments to repurchase 37,000 shares of its common stock with a value of $1.1 million. This repurchase program was completed in June 1994. In August 1994, 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. No shares have been repurchased to date under the August 1994 program. 6 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, 1995, operations generated cash of approximately $44.6 million compared to $28.4 million in the same period last year. The $16.2 million increase was principally caused by higher income adjusted for cumulative effect of accounting change and other non-cash items, and improved cash collections and inventory turnover. Net cash used in investing activities decreased to $10.1 million from $23.2 million a year ago. The decrease was due to the proceeds from the sale of short- term investments in fiscal 1995 versus the purchase of such investments in fiscal 1994, offset to a certain extent by an increase in capital expenditures. Cash provided by financing activities increased by $6.0 million due principally to lower net retirement of debt and the repurchases of common stock in fiscal 1994. Working capital was $178.6 million at March 31, 1995, a $49.6 million increase from June 30, 1994. The increase was principally due to cash generated from operations and higher accounts receivable balances and inventory levels. Between March 31, 1995 and June 30, 1994 the current ratio increased to 3.1 from 2.8. 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, 1995 or June 30, 1994. 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, 1995 such loans totaled $10.1 million compared to $9.1 million at June 30, 1994. Management anticipates that cash generated from operations during the remainder of the fiscal year and cash 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 and the effects of the cancellation of the sublease by the sublessee. 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, 1995, net sales were $118.0 million and $321.4 million, respectively, up $29.0 million (33%) and $79.8 million (33%) 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, particularly those of the Company's interventional angiographic products. Foreign sales, which also benefited from the increased interventional angiography sales volumes, increased by $23.5 million (46%) and $63.5 million (47%), respectively, and accounted for 63% of total sales in the current quarter compared to 58% a year ago. Had currency exchange rates remained constant throughout the periods, the increases in foreign sales would have been 32% and 36%, respectively. Sales of angiographic products were $112.9 million and $308.3 million, respectively, for the three and nine months ended March 31, 1995, which represented increases over the prior year of $28.4 million (34%) and $78.8 million (34%), respectively. Sales of neuroscience products increased $0.7 million (15%) and $1.1 million (9%) in the respective periods. 7 Operating Costs and Expenses Cost of goods sold expressed as a percent of sales was 41% and 40%, respectively, for the three and nine months ended March 31, 1995, compared to 39% in each of the corresponding prior-year periods. The two percentage point decrease in the gross profit margin for the current quarter was principally attributable to the impact of a voluntary recall, announced in March 1995, of one of the Company's steerable guidewire product lines, margin loss resulting from decreases in average selling prices in the U.S. in the Company's significant product lines due to competitive pricing pressures, and unfavorable exchange rate effects upon gross profit margins in Europe. The Company expensed approximately $1.1 million in the third quarter of fiscal 1995 for the estimated effect of the recall. These items were also principally responsible for the one percentage point decrease in the gross profit margin for the nine month period. Research and development expenses for the three and nine months ended March 31, 1995 were $8.9 million and $24.9 million, respectively, increases of $2.1 million (31%) and $5.9 million (31%) from the prior year. The increases in research and development expenses were principally due to higher spending on interventional angiography and other products in the U.S. and diagnostic angiography products in Europe. Expressed as a percent of sales, research and development expenses were 8% in all periods presented. Selling, general and administrative expenses for the three and nine months ended March 31, 1995 were $37.9 million and $105.6 million respectively, up $7.5 million (25%) and $24.0 million (29%) from the corresponding periods of last year. The increases in selling, general and administrative expenses were principally due to higher legal expenses, increased sales commissions and promotional expenses due to higher sales, higher salaries and employee benefits attributable to headcount increases and adverse foreign currency exchange rate effects. If currency rates had remained constant throughout the periods, selling, general and administrative expenses would have increased 18% and 24%, respectively, over last year. Expressed as a percent of sales, selling, general and administrative expenses were 32% and 33%, respectively, in the three and nine month periods ended March 31, 1995 and 34% in each of the three and nine month periods ended March 31, 1994. Other Expenses, Net Other expenses, net of interest income increased by $0.5 million and $0.4 million, respectively, in the three and nine months ended March 31, 1995 compared to the prior fiscal year. The increases were principally due to higher currency losses, higher reserves for an uncollected receivable and other items. 8 Income Taxes The consolidated effective income tax rates for the three and nine months ended March 31, 1995 were 38% and 39%, respectively, compared to 38% in each of the corresponding prior year periods. The one percentage point rate increase for the nine months was principally due to the beneficial effect of a one-time adjustment in fiscal 1994 related to an increase in the U.S. corporate tax rate. Net Income Income before cumulative effect of an accounting change for the three and nine months ended March 31, 1995 was $13.8 million ($0.82 per share) and $38.4 million ($2.30 per share), respectively, compared to $10.5 million ($0.63 per share) and $28.4 million ($1.72 per share) in the prior year periods. Net income for the three and nine months ended March 31, 1995 was the same as stated previously, while net income for the three and nine months ended March 31, 1994 was $10.5 million ($0.63 per share) and $38.5 million ($2.33 per share). PART II. OTHER INFORMATION Item 1. Legal Proceedings In the pacemaker product liability class action, the stay of the proceedings was extended to allow for the continuation of settlement discussions. The judge has scheduled a telephone status conference for May 10, 1995. The United States Court of Appeals for the Eleventh Circuit has affirmed the Trial Court's decision granting summary judgment in favor of the Company in connection with severance and pay in lieu of notice claims made by former Company employees who were transferred to the company acquiring the pacemaker business in 1987. The Company has recently been named as a co-defendant in two class actions asserting product liability claims arising out of certain pacing leads manufactured and sold by TPLC, Inc. ("TPLC"), an affiliate of TNC Medical Devices Pte. Ltd. ("TNC"), the company that acquired the assets of the pacemaker and leads business in 1987. Over twenty (20) class action suits involving the same leads have been filed against TPLC. Facts presently available indicate that such leads were first marketed and sold by TPLC or its affiliate in 1988, after an affiliate of TPLC obtained 510(k) concurrence from the Food and Drug Administration ("FDA") for the leads. The Company further believes that because it never manufactured or sold the leads in question, it is not a proper defendant to these actions and will seek dismissal in all cases in which the Company is named. Moreover, the Company believes it is entitled to indemnification from TNC pursuant to the Acquisition Agreement by and between TNC and the Company involving the sale of the pacemaker and leads businesses ("Acquisition Agreement"). TNC has notified the Company that the Company may have liability regarding the leads claims, pursuant to the Acquisition Agreement, however, based upon the information available indicating that the Company did not manufacture or sell the leads in question, the Company does not believe it has any liability to TNC or to lead recipients for any of the claims asserted. 9 In the Schneider (USA) Inc. litigation against the Company, a trial date is expected to be scheduled in June or July 1995. In the Dutch action instituted by Schneider against the Company, the trial date has been scheduled for June 28, 1995. In the Company's summary proceedings against Schneider in the Netherlands involving the Company's patents relating to the Company's nylon balloon technology, the court denied the Company's request for an injunction. The Company intends to appeal that decision. Decisions regarding injunctions in the various European actions instituted by the Company against Schneider regarding the nylon balloon technology are anticipated over the next year. Item 5. Other Information The Company was notified on March 21, 1995 that the United States Food and Drug Administration ("FDA") is satisfied with the response to a Warning Letter issued on December 30, 1994, and that the Company has been removed from the FDA's reference list. Item 6. Exhibits and Reports on Form 8-K a) Exhibit 11 Computation of primary earnings per share. b) No reports were filed on Form 8-K during the three months ended March 31, 1995. 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 Alfred J. Novak, Vice President and Chief Financial Officer (principal financial officer) Date: April 28, 1995 10 EX-11 2 Exhibit 11 CORDIS CORPORATION COMPUTATION OF PRIMARY EARNINGS PER SHARE Three Months and Nine Months Ended March 31, 1995 and 1994 (Unaudited) (Dollars in thousands except per share amounts) Three Months Nine Months 1995 1994 1995 1994 Income before cumulative effect of accounting change $13,781 $10,540 $38,396 $28,397 Cumulative effect of accounting change - - - 10,115 Net income $13,781 $10,540 $38,396 $38,512 Common shares (000): Weighted average common shares outstanding 16,218 16,022 16,119 15,970 Equivalent shares from outstanding options (1) 576 627 560 557 Total 16,794 16,649 16,679 16,527 Earnings per share: Income before cumulative effect of accounting change $ .82 $ .63 $ 2.30 $ 1.72 Cumulative effect of accounting change - - - .61 Net income $ .82 $ .63 $ 2.30 $ 2.33 (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. EX-27 3 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 QTR-3 9-MOS JUN-30-1995 JUN-30-1995 MAR-31-1995 MAR-31-1995 87,912 87,912 0 0 97,896 97,896 0 0 58,702 58,702 264,280 264,280 84,214 84,214 76,918 76,918 358,665 358,665 85,701 85,701 0 0 16,298 16,298 0 0 0 0 242,611 242,611 358,665 358,665 117,980 321,355 117,980 321,355 48,079 127,083 94,891 257,573 738 1,020 0 0 0 0 22,351 62,762 8,570 24,366 13,781 38,396 0 0 0 0 0 0 13,781 38,396 0.82 2.30 0.82 2.30
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