-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EHdLqKCMO5VnTcLWNZ600CFLq5og03JZzfGjBzWIFEqOw1zsdSfnFXvSHsuFjTuh XQav7XrydFSp7Z96KhQk6w== 0000719727-95-000018.txt : 19951119 0000719727-95-000018.hdr.sgml : 19951119 ACCESSION NUMBER: 0000719727-95-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRCON CORP CENTRAL INDEX KEY: 0000719727 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 953079904 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12025 FILM NUMBER: 95591430 BUSINESS ADDRESS: STREET 1: 460 WARD DR CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8059670404 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED September 30, 1995 COMMISSION FILE NO. 0-12025 CIRCON CORPORATION (Exact Name of Registrant as Specified in Its Charte Delaware 95-3079904 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6500 Hollister Avenue, Santa Barbara, California 93117-3019 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (805) 685-5100 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 twelve 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 Number of Common Shares Outstanding at September 30, 1995: 12,335,561 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND SEPTEMBER 30, 1995 ASSETS (Unaudited) (Unaudited) December 31, September 30, 1994 1995 CURRENT ASSETS: Cash and temporary cash investment $ 2,883,000 $ 3,902,000 Marketable securities 21,033,000 19,871,000 Accounts receivable, net of allowance of $1,499,000 in 1994, and $1,837,000 in 1995 26,769,000 27,731,000 Inventories 29,933,000 33,904,000 Prepaid expenses and other assets 3,603,000 2,517,000 Deferred tax asset - current 5,946,000 6,462,000 ------------ ---------- Total current assets 90,167,000 94,387,000 PROPERTY, PLANT, AND EQUIPMENT, at cost, net of accumulated depreciation and amortization 52,194,000 49,181,000 OTHER ASSETS: Other, at cost, net of accumulated amortization 41,549,000 38,074,000 ----------- ----------- Total assets 183,910,000 $ 181,642,000 =========== =========== The accompanying notes are an integral part of these consolidated statements. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND SEPTEMBER 30, 1995 LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Unaudited) December 31, September 30, 1994 1995 CURRENT LIABILITIES: Accounts payable 4,309,000 7,410,000 Accrued liabilities 11,816,000 13,069,000 Accrued interest 1,665,000 503,000 Short term borrowings 349,000 - Current portion of long term debt 726,000 605,000 Customer deposits 473,000 502,000 ---------- ---------- Total current liabilities 19,338,000 22,089,000 NONCURRENT LIABILITIES Long term debt 72,237,000 71,430,000 Deferred income taxes 4,537,000 4,625,000 Capital lease obligations and other 684,000 472,000 ---------- ---------- Total noncurrent liabilities 77,458,000 76,527,000 SHAREHOLDERS' EQUITY Preferred stock, $ .01 par value: 1,000,000 shares authorized, none outstanding Common stock; $ .01 par value: 50,000,000 shares authorized; 12,250,127 and 12,335,561 outstanding at December 31, 1994 and September 30, 1995 12,000 12,000 Net receivable from officer (272,000) - Cumulative translation adjustment (341,000) 254,000 Retained deficit (1,836,000) (8,201,000) ----------- ----------- Total shareholders' equity 87,114,000 83,026,000 Total liabilities and shareholders' equity $ 183,910,000 $ 181,642,000 =========== =========== The accompanying notes are an integral part of these consolidated statements. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30, September 30, (Unaudited) (Unaudited) (Unaudited)(Unaudited) 1994 1995 1994 1995 NET SALES $ 39,676,000 $ 42,113,000 $ 115,621,000 121,867,000 COST OF SALES 17,691,000 18,635,000 50,108,000 55,387,000 Non-Recurring business integration exp. - 4,212,000 - 4,212,000 ---------- ---------- ---------- ----------- GROSS PROFIT 21,985,000 19,266,000 65,513,000 62,268,000 OPERATING EXPENSES: Research and development 3,105,000 2,867,000 9,434,000 8,433,000 Selling, general and administrative 15,174,000 15,556,000 46,502,000 48,856,000 Non-Recurring business integration exp. - 4,221,000 - 4,221,000 Reversal of Cabot restructuring charge - - - (188,000) ---------- ---------- ---------- ---------- Total operating expenses 18,279,000 22,644,000 55,936,000 61,322,000 INCOME ( LOSS) FROM OPERATIONS 3,706,000 (3,378,000) 9,577,000 946,000 Non-Recurring transaction costs - (4,936,000) - (4,936,000) Interest expense, net (1,260,000) (1,245,000) (3,818,000) (3,424,000) Other income (expense), net (28,000) 54,000 (11,000) 47,000 ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 2,418,000 (9,505,000) 5,748,000 (7,367,000) Provision (benefit) for income taxes 725,000 (2,131,000) 1,377,000 (959,000) NET INCOME (LOSS) $ 1,693,000 $ (7,374,000) $ 4,371,000 $(6,408,000) ========= =========== ========= =========== Net Earnings Per Share $ 0.14 $ (0.56) $ 0.35 $ (0.49) Weighted average number of shares outstanding 12,494,356 13,197,510 12,630,075 13,034,095 The accompanying notes are an integral part of these consolidated statements.
CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES 1994 1995 Net income (loss) 4,371,000 (6,408,000) Adjustments to reconcile net income to cash provided from (used in) operating activities: Depreciation and amortization 3,899,000 9,079,000 Deferred income taxes 73,000 88,000 Change in assets and liabilities: Accounts receivable, net (382,000) (962,000) Inventories (1,078,000) (3,971,000) Prepaid and other assets (843,000) 1,086,000 Other assets 714,000 857,000 Accounts payable 1,063,000 3,101,000 Accrued liabilities 306,000 1,253,000 Customer deposits 81,000 29,000 Accrued Interest (1,256,000) (1,162,000) Other long term liabilities (255,000) (212,000) ------------ ----------- Total adjustments 2,322,000 9,186,000 Net cash provided from operating activiti 6,693,000 2,778,000 CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, (Unaudited) (Unaudited) CASH FLOWS FROM INVESTING ACTIVITIES 1994 1995 Investments in marketable securiti 175,000 1,444,000 Purchases of plant and equipment (8,452,000) (3,921,000) Short term borrowing (25,000) (470,000) Long term borrowing (217,000) (807,000) Cumulative translation adjustment 56,000 595,000 ------------- ------------- Net cash used in investing activities (8,463,000) (3,159,000) CASH FLOWS FROM FINANCING ACTIVITIES Common stock issued under stock option pl 743,000 1,128,000 Common stock repurchased (654,000) - Retirement of treasury stock (1,827,000) - Net receivable from officer (272,000) 272,000 Tax benefit from exercise of stock option 408,000 - ------------ ----------- Net cash provided from (used in) financin (1,602,000) 1,400,000 ------------ ----------- Net increase (decrease) in cash and cash (3,372,000) 1,019,000 Cash and cash investments, beginning of period 4,760,000 2,883,000 --------- --------- Cash and cash investments, end of period $ 1,388,000 $ 3,902,000 ========= ========= SUPPLEMENTAL DISCLOSURES Cash paid for interest $ 5,277,000 $ 5,283,000 ========= ========= Cash paid for income taxes $ 1,082,000 $ 948,000 ========= ========= The accompanying notes are an integral part of these consolidated statements. CIRCON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 General The accompanying condensed consolidated financial statements include the accounts of Circon Corporation (the Company) and its subsidiaries, Cabot Medical (a U.S. corporation), Circon GmbH (a German corporation), Circon Canada Inc. (a Canadian corporation) and Circon Export Corporation, which operates as a Foreign Sales corporation (FSC) under federal income tax laws. All significant intercompany transactions and accounts have been eliminated in consolidation. The condensed consolidated financial statements included herein have been prepared by the Company, without audit, 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. It is suggested that these condensed consolidated financial statements be read in conjunction with the statements and notes thereto included in the Company's annual report for the year ended December 31, 1994, and Form S-4 filed in connection with the Cabot business combination. The information reflects all adjustments (consisting only of normal recurring adjustments and the restatement for the Cabot business combination) which are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operations for the interim periods. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. The results for the interim periods are not necessarily indicative of the results expected for any other period or for the entire year. Note 1 Cabot Business Combination On August 28, 1995, the Company issued 4,339,302 shares of its common stock for all the outstanding shares of Cabot Medical Corporation ("Cabot"). The merger has been accounted for as a pooling-of-interests and, accordingly, the Company's consolidated financial statements have been restated for all periods prior to the merger to include the results of operations, financial position, and cash flows of Cabot. In connection with the merger, approximately $13.4 million (pre-tax) of merger costs and non-recurring combination expenses were incurred and have been charged to expense in the three months ended September 30, 1995. These costs include $8.4 million associated with the elimination of duplicative, excess, obsolete inventories and related production equipment, and reorganizing and cross training the sales force, and $4.9 million of fees and other expenses specifically associated with the merger process. Separate results of the combined entities for the three months and nine months ended September 30, 1994 and the six months ended June 30, 1995 are as follows: Three Months Ended Nine Months Ended Six Months Ended September 30, 1994 September 30, 1994 June 30, 1995 (000's) (000's) (000's) Net Sales Circon $ 22,469 $ 65,232 $ 48,410 Cabot 17,207 50,389 31,344 --------- -------- -------- 39,676 115,621 79,754 ========= ========= ========= Net Income Circon $ 1,122 $ 2,800 $ 2,946 Cabot 672 1,872 (1,465) Adjustments (101) (301) (730) --------- --------- --------- 1,693 4,371 751 ========= ========= =========
The adjustments are required to retroactively conform Circon's accounting for demonstration equipment to Cabot's accounting policy. Note 2 Earnings per share Earnings per common share and common equivalent share have been computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the year. The number of common shares was increased for the dilutive effect of shares issuable upon the exercise of warrants and stock options. Shares issuable upon conversion of the Company's 7.50% Convertible Subordinated Notes due March 1, 1999 (note 4) are excluded from the per share computations as they are not common stock equivalents and are antidilutive. Note 3 Inventory Inventories include costs of materials, labor and manufacturing overhead. Inventories are priced at the lower of cost (first-in, first-out) or market and are summarized as follows: (Unaudited) (Unaudited) December 31, September 30, 1994 1995 Raw materials $ 9,068 $ 12,205 Work in process 10,180 12,992 Finished goods 10,685 8,707 -------- -------- Total $ 29,933 $ 33,904 ======== ======== Note 4 Credit Facility In September 1994, the Company extended its $15.0 million revolving bank credit line. The agreement matures in May 1996 and includes annual renewals after that time. On August 28, 1995, Circon merged with Cabot Medical Corporation in a stock-for-stock transaction. As a result of this merger, Circon is preparing to refinance Cabot's $67 million convertible subordinated notes, assuming that 75 % of the current note holders will vote to "put" their notes back to Circon. The vote by note holders should be completed by the end of November 1995. Accordingly, a new revolving bank credit line for $75.0 million has been arranged. This new credit line will replace the $15.0 million credit line discussed above. The agreements for the $75.0 million credit line have been finalized and funding for the note, if necessary, should occur in late November or early December 1995.ITEM 2. Management's Discussion and Analysis of Operations and Financial Condition RESULTS OF OPERATIONS General On August 28, 1995, Circon Corporation acquired Cabot Medical Corporation. This report presents Circon and Cabot for the entire quarter and for past periods as if they had always been merged, which is required under pooling of interest accounting rules. All Cabot Medical Common Shares have been converted into Circon Common Shares at a ratio of 0.415 shares of Circon for each share of Cabot. In the process of merging, Circon and Cabot incurred one-time business integration merger expenses totalling $13.4 million pre-tax and $9.8 million after tax which are reflected in the third quarter. A total of $8.4 million of one-time expenses associated with eliminating duplicative, excess, obsolete inventories and related production equipment, and reorganizing and cross training the sales force, are noted in the appropriate cost and expense categories as a business integration expense. The $4.9 million of fees and other expenses specifically associated with the merger process are noted as non-recurring transaction costs. The nine months include the above mentioned $13.4 million pre-tax and a $0.2 million reversal of previously expensed restructuring charges by Cabot Medical. Three Months Ended September 30, 1995 Compared to Three Months Ended September 30, 1994 Sales Total sales for the third quarter of Circon including Cabot were up $2.4 million over the third quarter 1994 to $42.1 million, even though the entire sales organization was out of the field in training for more than two weeks. The ACMI and Video divisions sales were up 14%, led by a 43% increase in the international sector. Cabot's third quarter sales were down 5% from the comparable 1994 quarter, but continue to increase from the low of the first quarter 1995. Price increases were negligible between the 1995 and 1994 third quarters, therefore, all of the sales increase related to volume. Gross Profit In order to provide perspective as to Circon's operating performance, the following discussion of gross profit and operating expenses exclude one-time business integration/merger expenses and compares combined results for both 1994 and 1995. Gross profit totalled $23.5 million, up $1.5 million for the quarter. As a percent of sales, third quarter gross profit was a healthy 56%. Pricing has stabilized and manufacturing efficiencies are being achieved as a result of higher production volumes. Operating Expenses Combined operating expenses for the third quarter were up only $0.1 million over last year while sales increased $2.4 million. Total expenses as a percentage of sales are down to 43.7% in the third quarter 1995 from 46.0% for the comparable 1994 period. R&D expenditures totalled $2.9 million for the third quarter 1995, down 8% from the same 1994 quarter, yet remain a healthy 7% of sales. Selling, general and administrative expenses of $15.6 million for the third quarter 1995 are up 3.0% compared to $15.2 million for 1994, but are up less than the percentage sales growth for the period. Increased sales commissions and marketing expenses associated with new products are the major contributors to the expense increase. Income from Operations Combined operating income was up 36% to $5.1 million for the third quarter 1995. Operating income for the ACMI and Video operations was up 141% for the quarter, continuing the strong operating performance seen throughout 1995. Interest Income and Expense Net interest expense for the third quarter 1995 totalled $1.2 million, down slightly from the $1.3 million for the comparable 1994 period due to increased interest income offsetting some of Cabot's interest expense. Net Income As a result of items discussed above, third quarter 1995 net income, excluding one-time charges, totalled $2.5 million or $0.19 per share compared to $1.7 million or $0.14 per share for the 1994 period. Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30, 1994 Sales Sales of $121.9 million for the nine months of 1995 compare favorably to $115.6 million for the same 1994 period. Combined international sales are up over 30% in both the third quarter and nine months of 1995, primarily due to our outstanding new products and increased market penetration. All growth in the nine months of 1995 compared to 1994 has come from increased volume as price increases between the period have been negligible. Gross Profit In order to provide perspective as to Circon's operating performance, the following discussion of gross profit and operating expenses exclude one-time business integration/merger and restructuring expenses and compares combined results for both 1994 and 1995. Gross profit for nine months was $66.5 million, up $1.0 million from the comparable 1994 period. The higher production volumes resulting in manufacturing efficiencies and increasing gross profit percentages in the ACMI and Video divisions have been offset by profit erosion in Cabot. Gross profit percentage for the nine months of 1995 is 54.6%. Operating Expenses Operating expenses totalled $57.3 million, up only $1.4 million or 2.4% over the 1994 period. Total expenses as a percentage of sales are down to 47.0% for the nine months of 1995 from 48.4% for the comparable 1994 period. R&D expenditures totalled $8.4 million for the nine months 1995, down from the $9.4 million of the comparable 1994 period, but still a healthy 7.0% of sales. Selling, general and administrative expenses for nine months 1995 were up $2.4 million or 5.1% to $48.9 million. Commissions have increased due to higher sales levels, and marketing expenses associated with new product introductions are up, both contributing to the expense increase. Operating Income Operating income for 1995 totalled $9.2 million, down 4.0% from the comparable nine month 1994 period. The strong operating performance of the ACMI and Video divisions continued, increasing 103% for nine months 1995 compared to 1994. Cabot's operating income has been improving since the first quarter of 1995 and reached $2.1 million for the nine months compared to $6.1 million for the 1994 period. Interest Income and Expense Net interest expense for the nine months 1995 totalled $3.4 million, down 10% from the 1994 period, due to increased interest income offsetting Cabot's interest expense. Net Income As a result of the items discussed above, net income for the nine months 1995 totalled $3.4 million or $0.26 per share compared to $4.4 million or $0.35 per share for the 1994 period. LIQUIDITY AND CAPITAL RESOURCES In September 1994, the company extended its $15.0 million revolving bank credit line. The agreement matures in May 1996 and includes annual renewals after that time. On August 28, 1995, Circon merged with Cabot Medical Corporation in a stock-for-stock transaction. As a result of this merger, Circon is preparing to refinance Cabot's $67 million convertible subordinated notes, assuming that 75% of the current note holders will vote to "put" their notes back to Circon. The vote by note holders should be completed by the end of November 1995. Accordingly, a new revolving bank credit line for $75.0 million has been arranged. This new credit line will replace the $15.0 million credit line discussed above. The agreements for the $75.0 million credit line have been finalized and funding for the note, if necessary, should occur in late November or early December 1995. As of September 30, 1995, the company had cash and marketable securities totalling $23.8 million. The company believes that cash flow from operations, existing cash and marketable securities and available cash from bank credit facilities are adequate to fund the company's existing operations for the foreseeable future. Non-cash charges for depreciation and amortization aggregated $9.1 million for the nine months 1995 and $3.9 million was used to purchase plant and equipment (net of retirements). 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. CIRCON CORPORATION Registrant November 13, 1995 Date RICHARD A. AUHLL President Chief Executive Officer November 13,1995 Date R. BRUCE THOMPSON Executive Vice President Chief Financial Officer EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 The user should be aware that this document is not complete, and should refer to the 10Q for a complete set of financial information. 9-MOS DEC-31-95 SEP-30-95 3,902,000 19,871,000 29,568,000 (1,837,000) 33,904,000 94,387,000 81,958,000 (32,777,000) 181,642,000 22,089,000 0 91,005,000 0 0 222,000 181,642,000 121,867,000 121,867,000 59,599,000 120,921,000 4,889,000 0 3,424,000 (7,367,000) (959,000) (6,408,000) 0 0 0 (6,408,000) (.49) (.49)
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