-----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, Tg+wRy8USbdfNpwiPdTdFsoEOVoh2lRSeRQOCIMCK6ds5sWB2It/L0KMQUT+IM40 qlSmTyEY5nmHQlB7ZT0fmg== 0000719727-96-000003.txt : 19960517 0000719727-96-000003.hdr.sgml : 19960517 ACCESSION NUMBER: 0000719727-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 96565336 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 March 31, 1996 COMMISSION FILE NO. 0-12025 CIRCON CORPORATION (Exact Name of Registrant as Specified in Its Charter) 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) (Zip Code) 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 March 31, 1996: 12,574,196 CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND MARCH 31, 1996 ASSETS (In thousands, except for share amounts) (UNAUDITED) December 31, March 31, 1995 1996 ----------- ----------- CURRENT ASSETS: Cash and temporary cash investments $ 17,586 $ 8,292 Marketable securities 6,496 585 Accounts receivable, net of allowance of $1,807 in 1995 and $1,814 in 1996 26,539 27,569 Inventories 31,645 32,648 Prepaid expenses and other assets 2,627 3,412 Deferred income taxes 5,932 5,932 ----------- ---------- Total current assets 89,233 78,438 PROPERTY, PLANT, AND EQUIPMENT, NET 53,750 54,395 OTHER ASSETS 36,824 36,088 ---------- ----------- Total assets $ 181,399 $ 168,921 =========== =========== The accompanying notes are an integral part of these consolidated balance sheets. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND MARCH 31, 1996 LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands, except for share amounts) (UNAUDITED) December 31, March 31, 1995 1996 ----------- ---------- CURRENT LIABILITIES: Current maturities of long-term obligations $ 15,857 $ 574 Accounts payable 7,728 5,426 Accrued liabilities 10,796 10,624 Customer deposits 1,079 1,191 ----------- ---------- Total current liabilities 35,460 17,815 NONCURRENT LIABILITIES: Long-term obligations 56,435 58,935 Deferred income taxes 2,251 2,608 Capital lease obligations and other 81 61 ----------- ---------- Total noncurrent liabilities 58,767 61,604 SHAREHOLDERS' EQUITY: Preferred stock: $0.01 par value 1,000,000 shares authorized, none outstanding Common stock: $0.01 par value 50,000,000 shares authorized 12,564,079 and 12,574,196 issued and outstanding in 1995 and 1996 respectively 126 190 Additional paid-in capital 94,928 94,958 Minimum pension liability (143) (143) Cumulative translation adjustment (513) 64 Accumulated Deficit (7,226) (5,567) ----------- ---------- Total shareholders' equity 87,172 89,502 Total liabilities and shareholders' equity $ 181,399 $ 168,921 =========== ========= The accompanying notes are an integral part of these consolidated balance sheets. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March, 31 (In thousands, except per share amounts) (UNAUDITED) (UNAUDITED) 1995 1996 ---------- --------- NET SALES $ 37,921 $ 39,962 Cost of sales 17,398 17,764 ---------- --------- GROSS PROFIT 20,523 22,198 OPERATING EXPENSES: Research and development 2,612 2,975 Selling, general and administrative 15,844 15,645 ---------- ---------- Total operating expenses 18,456 18,620 INCOME FROM OPERATIONS 2,067 3,578 Interest income 363 95 Interest expense (1,440) (1,128) Other income (expense), net 53 (62) ---------- ------------ INCOME BEFORE PROVISION FOR INCOME TAXES 1,043 2,483 Provision for income taxes 370 824 ---------- ----------- NET INCOME $ 673 $ 1,659 ========== =========== EARNINGS PER SHARE $ 0.07 $ 0.13 ========== =========== Weighted Average Number of Shares of Common Stock and Equivalents Outstanding 12,778 13,114 ========== ========== The accompanying notes are an integral part of these consolidated statements. CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March, 31 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES 1995 1996 -------- ------- Net income 673 1,659 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 2,476 2,380 Deferred income taxes (40) 310 Change in assets and liabilities: Accounts receivable 394 (1,030) Inventories (935) (1,003) Prepaid expenses and other assets (148) (785) Other assets 272 123 Accounts payable 810 (2,302) Accrued liabilities (1,706) (172) Customer deposits 13 112 --------- --------- Net cash provided by (used in) operating activities 1,809 (708) --------- --------- CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March, 31 (In Thousands) CASH FLOWS FROM INVESTING ACTIVITIES 1995 1996 -------- -------- Disposals of marketable securities, net 318 5,911 Purchases of property, plant and equipment (3,549) (2,365) Cumulative translation adjustment 448 577 -------- -------- Net cash provided by (used in) investing activities (2,783) 4,123 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 151 82 Repayments of capital lease obligations (135) (20) Repayments of long-term obligations (362) (12,783) Tax benefit from exercise of stock options 244 12 Other (149) 0 --------- -------- Net cash used in financing activities (251) (12,709) --------- -------- Net decrease in cash and temporary cash investments (1,225) (9,294) Cash and temporary cash investments, beginning of period (reflects Cabot cash as of Dec 31, 1995) 2,882 17,586 --------- -------- Cash and temporary cash investments, end of period $ 1,657 $ 8,292 ========= ======== SUPPLEMENTAL DISCLOSURES Cash paid for interest $ 2,592 $ 66 ======== ======== Cash paid for income taxes $ 176 $ 274 ======== ======== The accompanying notes are an integral part of these consolidated statements. CIRCON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 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, 1995, and Form S-4 filed in connection with the Cabot business combination. On August 28, 1995, Circon Corporation ("Circon") merged with Cabot Medical Corporation ("Cabot"), collectively referred to as "the Company," in a transaction accounted for as a pooling of interests. Circon's consolidated financial statements have been restated for all periods prior to the merger to include the financial position, results of operations and cash flows of Cabot. 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. The results for the interim periods are not necessarily indicative of the results expected for any other period or for the entire year. (1) Inventories ----------- Inventories include costs of materials, labor and manufacturing overhead and are priced at the lower of cost (first-in, first-out) or market. Inventories at December 31, 1995 and March 31, 1996 consist of the following: 1995 1996 ---------- --------- Raw materials $ 11,017 $ 10,942 Work in process 12,243 11,957 Finished goods 8,385 9,749 ---------- --------- $ 31,645 $ 32,648 ========== ========= (2) Long-Term Obligations -------------------- Long-term obligations as of December 31, 1995 and March 31, 1996 consist of the following: 1995 1996 --------- -------- Note payable to bank under a revolving line of credit of $75,000,000, secured by substantially all of the company's assets, with interest at 0.95 points above the Eurodollar rate (6.325% at March 31, 1996). $ - $ 54,500 7.5% convertible subordinated notes 67,000 - Industrial development authority bonds due December 2, 2006 5,180 4,950 Other 112 59 Less: current maturities (15,857) (574) --------- -------- $ 56,435 $ 58,935 ========= ======== The Company has a $75 million revolving credit facility (the "Credit Facility") which provides for direct borrowings and a maximum of $5 million in letters of credit. The Company has the option to borrow money based upon (I) the higher of the prime rate or an adjusted federal funds rate or (ii) an adjusted eurodollar rate. The unused portion of the Credit Facility has a commitment fee which ranges from .1875% to .375%. The Credit Facility, which expires August 1, 2001, contains certain restrictive financial covenants and is secured by substantially all of the assets of the Company. The Company has a letter of credit facility in the amount of approximately $5,327 as of March 31, 1996 underlying $7,000 of tax exempt Industrial Development Authority Bonds (the "Bonds") issued in December 1991 with a 15 year maturity requiring monthly interest payments and annual principal payments. The letter of credit has a renewable 5 year term and carries an annual fee of 1% of the outstanding bond principal amount. The bonds are subject to weekly repricing at an interest rate based on the remarketing agents' professional judgment and prevailing market conditions at the time. The Bonds and the letter of credit facility are collateralized by the Company's two Langhorne, Pennsylvania operating facilities. These facilities had a net carrying value of $5,181 as of March 31, 1996. During the first quarter of 1996 the Company repurchased all but $39,000 of the $67,000,000 convertible notes. In April the Company repurchased the remaining $39,000 of the convertible note. Approximately $54.5 million of the Credit Facility and $12.5 million of available cash was used to repurchase these notes. Future principal maturities of the Industrial Development Bonds and the Credit Facility are as follows: 1996 $ 574 1997 370 1998 390 1999 405 2000 430 Thereafter 57,340 --------- $ 59,509 ========= ITEM 2. Management's Discussion and Analysis of Operations and Financial Condition RESULTS OF OPERATIONS --------------------- Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995 Sales ------- Total sales of $40.0 million were up 5.4% over first quarter 1995. U.S. sales force sales and international sales increased 9% and 7%, respectively. These were partially offset by a 19% decrease in dealer sales and a 16% decrease in industrial sales. Price increases accounted for 1% of the sales increase. Gross Profit ------------- First quarter gross profit totaled $22.2 million or 55.5% of sales compared to $20.5 million or 54.1% for the same period last year. The improvement was the result of increased manufacturing efficiencies and sales of higher margin products. Operating Expense ----------------- Total operating expenses increased 1% over first quarter 1995 as compared to a 5.4% sales increase. Selling and general administrative expense decreased 1.2% reflecting economies gained from the merger of Circon and Cabot. Research and development expenditures totaled $3.0 million, up 14% over prior year reflecting continued emphasis on new product development. As a percent of sales, R&D expense was 7.4% compared to 6.9% for prior year. Income from Operations ----------------------- Operating income was up 73% to $3.6 million due to increased sales and gross profits and operating expense trends discussed above. Interest and Other Expense -------------------------- Interest expense of $1,128,000 decreased $312,000 from prior year due to reduced loan balances. Interest income of $95,000 decreased $268,000 from prior year due to lower investment balances. Income Taxes ------------- The provision for income taxes of 33% compared to 35.5% in 1995 decreased due to the ability of the company to utilize some of the NOL from Cabot. Net Income ----------- Net income of $1.7 million was up 147% over comparable 1995 due to increased sales and higher profit margins. Subsequent Events ------------------ The company will be closing Cabot Medical's smaller facility in Langhorne, Pennsylvania, and taking other consolidating actions by the end of the third quarter 1996. As a result of this consolidation and related tax benefits, Circon is targeting after tax benefits of $0.8 million in 1996, (including a credit of approximately $2.0 million to the provision for income taxes resulting from the liquidation of Cabot and related realization of Cabot tax benefits), $1.8 million in 1997 and each subsequent year compared to not taking these actions. The targeted one time operating cost, associated with closing the facility, is $1.8 million in 1996, but will yield $2.6 million in operating cost savings in 1997 and each subsequent year compared to not consolidating. This consolidation is targeted to produce a $0.8 million benefit in the second quarter, (including a credit of approximately $2.0 million to the provision for income taxes resulting from the liquidation of Cabot and related realization of Cabot tax benefits), a $0.2 million cost in the third quarter and a benefit of $0.2 million in the fourth quarter, for a full year 1996 after tax benefit of $0.8 million. In the years 1997 and beyond, the after tax benefit is targeted for $0.45 million per quarter or $1.8 million per year. The major costs associated with closing the facility and relocating the production activities are targeted to occur in the second quarter and total $1.8 million for 1996. By the fourth quarter, operating savings of $0.3 million are targeted. In the years 1997 and beyond, this consolidation is targeted to produce operational savings of $0.65 million per quarter or $2.6 million per year. Liquidity and Capital Resources -------------------------------- Circon has a $75.0 million secured revolving credit line with a syndicate of banks. $50.5 million of this facility was used to repurchase Cabot notes in January 1996 (see note 2). As of March 31, 1996, the company had cash and marketable securities totaling $8.9 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 operation for the foreseeable future. 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 May 14, 1996 ------------ ----------------- Date RICHARD A. AUHLL President Chief Executive Officer May 14, 1996 ------------ ----------------- Date R. BRUCE THOMPSON Executive Vice President Chief Financial Officer [TYPE]EX-27 [ARTICLE] 5 [LEGEND] The user should be aware that this document is NOT complete, and should refer to the 10-Q for a complete set of financial information. [/LEGEND] [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] DEC-31-1996 [PERIOD-END] MAR-31-1996 [CASH] 8,292,000 [SECURITIES] 585,000 [RECEIVABLES] 29,383,000 [ALLOWANCE] 1,814,000 [INVENTORY] 32,648,000 [CURRENT-ASSETS] 78,438,000 [PP&E] 88,395,000 [DEPRECIATION] 34,000,000 [TOTAL-ASSETS] 168,921,000 [CURRENT-LIABILITIES] 17,815,000 [BONDS] 0 [COMMON] 95,148,000 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [OTHER-SE] (79,000) [TOTAL-LIABILITIES-AND-EQUITY] 168,921,000 [TOTAL-REVENUES] 39,962,000 [CGS] 17,764,000 [TOTAL-COSTS] 18,620,000 [OTHER-EXPENSES] 62,000 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 1,128,000 [INCOME-PRETAX] 2,483,000 [INCOME-TAX] 824,000 [INCOME-CONTINUING] 1,659,000 [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 1,659,000 [EPS-PRIMARY] 0.13 [EPS-DILUTED] 0.13
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