UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended June 30, 1994
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from
to
Commission File Number 0-3274
CORDIS CORPORATION
Incorporated in the I.R.S. Employer
State of Florida Identification No. 59-0870525
14201 N.W. 60th Avenue, Miami Lakes, Florida 33014
(305) 824-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1 Par Value
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of voting stock held by non-affiliates of Cordis
Corporation was approximately $681.9 million at August 22, 1994.
At August 22, 1994, 16,012,582 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held October 27, 1994, are incorporated by reference into Part III.
There are 44 pages included in this Form 10-K Report. The exhibit index is at
page 39.
Part I
Item 1. Business
General Development of Business and Industry Segments
The Company was incorporated in the State of Florida in 1959. The Company has
its principal headquarters at 14201 N.W. 60th Avenue, Miami Lakes, Florida 33014
and its telephone number is (305) 824-2000.
Effective in April 1994, the Company, through a wholly owned subsidiary,
acquired all of the outstanding stock of Webster Laboratories, Inc.("Webster"),
a company which develops and manufactures electrophysiology catheters for the
diagnosis and treatment of cardiac arrythmias (see Note 3 of Notes to
Consolidated Financial Statements). The transaction was accounted for as a
pooling of interests, and, accordingly, all prior year financial information
has been restated.
The Company operates in a single industry segment consisting of the design,
manufacture and sale of medical devices, primarily angiographic catheters,
neuroscience devices and other related medical devices (See Note 9 of Notes to
Consolidated Financial Statements).
Description of Business
The Company's net sales, with approximate breakdowns by major product class
during the past three fiscal years, were as follows (in thousands):
Years ended June 30,
1994 1993 1992
Angiographic products $320,579 $250,322 $213,720
Neuroscience products 15,963 17,124 16,757
Total $336,542 $267,446 $230,477
Angiographic Products
The Company manufactures an extensive line of angiographic devices for the
diagnosis and treatment of various cardiovascular diseases. The diagnostic
devices include catheters and related equipment that are inserted into a
patient's circulatory system to allow introduction of contrast media enabling a
physician to study the heart, blood vessels and other soft-tissue organs for the
purpose of determining the proper treatment of patients exhibiting disorders of
such tissues. Other diagnostic devices include electrophysiology catheters that
are used to diagnose the patient's electrical system in order to identify and
locate electrical conduction abnormalities. The interventional devices include
balloon dilatation catheters, guiding catheters, steerable guidewires and
accessory products which are used to treat such patients.
Neuroscience Products
The Company manufactures and sells several types of neuroscience products,
including implantable cerebrospinal fluid ("CSF") shunts for the treatment of
hydrocephalus (an excess accumulation of CSF in the ventricles of the brain) and
disposable intracranial pressure monitoring and drainage systems.
Principal Markets, Methods of Distribution
The Company's products are sold worldwide to hospitals, other medical
institutions and physicians. No customer individually accounts for a material
amount of the Company's total sales. In the U.S., all products are sold directly
through full-time employee sales representatives. Outside the U.S., they are
sold through employee sales representatives and distributors. The Company
maintains inventories of products in various locations worldwide. Periodically,
backlog orders have occurred, but none have been material to the Company's
business. An increasing number of hospitals in the U.S. participate in group
purchase organizations. These organizations negotiate prices on behalf of their
member organizations. The Company's business is generally not subject to
seasonal fluctuations.
Sources and Availability of Raw Materials
The Company's products incorporate components manufactured internally and others
purchased from external suppliers. Most purchased components could be obtained
from multiple sources if necessary.
Patents, Trademarks and Licenses
The Company currently owns over 325 patents, has several patents pending on
certain of its products and files applications to obtain patents on new
inventions when practical. Additionally, the Company has and endeavors to
obtain licenses from third parties for technology it deems necessary or
beneficial to the conduct of its business. The industry in which the
Company competes has been characterized by rapid technological advances. The
Company does not believe its business is materially dependent on any individual
patent.
Competition
Success in the medical device field is dependent upon product quality,
reliability, design features, service, price, and the relationship between the
Company and the physicians utilizing the products. The Company believes that
its product lines are competitive with other product lines in the market.
The Company's products compete with those of a number of other domestic and
foreign manufacturers. In the sale of angiographic products the Company competes
with several manufacturers, including C.R. Bard, Inc., Scimed Life Systems, Inc.
and divisions of Eli Lilly and Company and Pfizer, Inc., some of whom compete in
the sale of diagnostic products, others in the sale of interventional products,
and some in both. Based upon current information the Company believes that it
is a leading provider of diagnostic angiographic products and a less substantial
provider in the sale of interventional angiographic products.
With the rapid progress of medical technology the Company's products are always
subject to the risk of obsolescence through the introduction of new products or
techniques.
International Operations
In addition to the U.S. manufacturing operations, the Company manufactures
products at its facilities in Roden, The Netherlands, and Biot, France. The
Company's European headquarters is located in Waterloo, Belgium. The Company
maintains sales and marketing offices in many European and other countries.
Operations in countries outside the U.S. are subject to certain financial and
other risks, including currency restrictions, currency exchange fluctuations and
changes in foreign laws. Several countries in which the Company does business
have enacted laws and regulations that are protectionist in nature and have
resulted in increased costs and operational efforts by the Company in order to
continue to effectively compete in those countries. The Company does not
presently believe that such laws and regulations will have a material adverse
effect on the Company's foreign operations.
Research and Development
The Company is continually engaged in product development and improvement
programs. A major portion of development resources are devoted to
interventional angiographic devices and to a lesser extent to diagnostic
devices. Additionally, the Company invests a portion of development funds on
advanced technologies for the treatment of vascular diseases. During the
fiscal years ended June 30, 1994, 1993 and 1992, the Company spent
approximately $26.0 million, $20.1 million and $19.8 million, respectively, on
research and development activities. The Company has not engaged in material
customer or government sponsored research.
Government Regulation
The Company's activities are regulated by the United States Food and Drug
Administration ("FDA") and several state and foreign governmental authorities.
The FDA regulations govern the testing, marketing and registration of new
medical devices, in addition to regulating manufacturing practices, labeling
and record keeping procedures. The process of obtaining clearance from the FDA
to market products either through pre-market approvals or pre-market
notifications is costly and time consuming and can delay the marketing and sale
of the Company's products. Additionally, there is no assurance that such
approval will be granted. The FDA is empowered to perform unannounced
inspections of the Company's facilities and operations and to restrain
violations of the Food, Drug and Cosmetic Act. On July 18, 1994, a warning
letter was issued by the FDA requiring the Company to correct certain violations
observed during an inspection of the Company's facility in France, relative to
its neuroscience devices. While no adverse action has been instituted against
the Company at the present time, should the agency be dissatisfied with the
Company's corrective action and/or responses, the FDA is empowered to issue an
import alert or to take other action as it deems appropriate. The Company is in
the process of responding to the agency's concerns.
Medical device laws, ranging from device approval requirements to requests for
product data and price controls, are in effect in many countries in which the
Company does business outside the United States. In addition, government
reimbursement policies for health care costs are becoming increasingly
significant factors for medical device companies. Currently, U.S. Congress is
considering various health care reforms that are designed to broaden coverage
and reduce the cost of existing government and private insurance programs. It
is uncertain at this time what impact, if any, the health care reform efforts
will have on the Company. Any changes that limit or reduce reimbursement for
the Company's products could have a material adverse effect on the financial
condition of the Company.
The Company is also subject to federal, state and local laws which regulate the
discharge of materials into the environment and which seek to protect the
environment. Compliance with such laws has not resulted in material
expenditures nor are such expenditures anticipated to have a material adverse
effect on the Company's business.
Employees
As of June 30, 1994, the Company and its subsidiaries had approximately 3,370
employees.
Financial Information Relating to Foreign and Domestic Operations and Export
Sales
For a summary of foreign and domestic operations and segment reporting, see Note
9 of Notes to Consolidated Financial Statements.
Item 2. Properties
The Company's principal facilities, located in Miami Lakes, Florida; Roden, The
Netherlands; Biot, France and Baldwin Park, California consist of manufacturing
plants and research and administrative offices. The Company owns most of its
principal facilities and its production machinery and equipment. The Company is
evaluating the need for expansion of facilities based on its expected growth.
Management believes the Company's manufacturing facilities are adequate for
current levels of operation.
In September 1991 the Company subleased its former Administrative and Technical
Center ("ATC") to a third party for a term equal to the remaining term of its
capitalized lease (see Note 8 of Notes to Consolidated Financial Statements).
Item 3. Legal Proceedings
For a summary of legal proceedings, see Note 8 of Notes to Consolidated
Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
EXECUTIVE OFFICERS
The executive officers of the Company as of August 24, 1994 are as follows:
Name Age Position
Robert C. Strauss 53 President and Chief Executive Officer
Diane M. Barrett 33 Treasurer
Tony R. Brown 55 Vice President, and President and Chief
Executive Officer, Cordis Webster, Inc.
Richard J. Faleschini 47 Vice President, Marketing and Sales,
Americas Division
Jeffrey G. Gold 46 Vice President, and President, Cordis
Endovascular Systems, Inc.
Daniel G. Hall 48 Vice President, Legal Affairs,
Secretary and General Counsel
Rudy J. Kranys 57 Senior Vice President, Operations,
Americas Division
Charles R. McDowell 57 Vice President, Corporate Relations
and Assistant Secretary
Philip J. Monks 46 Vice President, Marketing and Sales,
European Division
Alfred J. Novak 46 Vice President and Chief Financial
Officer
Barbara G. Ramseyer 46 Vice President, Regulatory Affairs
and Quality Assurance
Egbert Ratering 46 Vice President, Operations, European
Division
Fernando V. Sanchez 41 Vice President and Controller
George von Klan 65 Vice President, International Marketing
and Sales
Wilton W. Webster 66 Vice President and Senior Scientific
Advisor and Vice President, Research and
Development and Chief Engineer, Cordis
Webster, Inc.
Robert C. Strauss was elected President and Chief Executive Officer of the
Company in February 1987. He joined the Company in 1983 as Vice President and
Chief Financial Officer and was elected Senior Vice President in March 1986.
Diane M. Barrett joined the Company in June 1990 as Manager, Internal Audit.
From May 1992 through December 1992 she served as Senior Manager, Corporate
Finance. In December 1992 she was elected to the additional position of
Assistant Treasurer and in June 1993 was elected Director, Corporate Finance and
Assistant Treasurer. She remained in that position until her election as
Treasurer in June 1994. Prior to employment by the Company, she served as an
Audit Manager with Arthur Andersen & Co.
Tony R. Brown was elected Vice President of the Company in April 1994, upon the
merger of Webster with a Company subsidiary. Mr. Brown has served as President
and Chief Executive Officer of Webster from April 1993 to the present date.
Prior to joining Webster, he served as Chief Operating Officer of Bio-Rad
Laboratories, Inc. between August 1990 and April 1993. From August 1986 to
August 1990 he served as President of Bentley Laboratories.
Richard J. Faleschini was elected Vice President, Marketing and Sales, Americas
Division in August 1994, having served as Vice President, North American
Marketing and Sales since June 1990. For the prior five years he was Vice
President, Marketing and Sales of Biomagnetic Technologies, Inc.
Jeffrey G. Gold joined the Company in May 1978 as Assistant Program Manager,
Angiographic Systems, and was promoted to Director, Manufacturing and
Development in February 1982, and Vice President, Manufacturing, North American
Operations in February 1991. In August 1991, he was elected to the position of
Vice President, Research and Development, North American Operations. In August
1993, he was elected Vice President and President, Cordis Endovascular
Systems, Inc.
Daniel G. Hall joined the Company as General Counsel in December 1981. He was
elected to the additional position of Assistant Secretary in February 1982 and
Secretary in July 1982. In April 1987, he was elected Vice President, Legal
Affairs, Secretary and General Counsel.
Rudy J. Kranys joined the Company in October 1984 as Vice President and
President of the Angiographic Products Division. In April 1987, he was elected
Senior Vice President, North American Operations, and in August 1994, he was
elected Senior Vice President, Operations, Americas Division.
Charles R. McDowell joined the Company in January 1976 as Assistant to the
Executive Vice President. He was named Assistant to the President in February
1977 and was elected to the position of Assistant Secretary in July 1982. In
February 1985, he was elected to the additional position of Vice President,
Corporate Relations.
Philip J. Monks joined the Company in August 1978 as a sales representative in
the United Kingdom. From 1980 through March 1985, he served as Division manager
for the United Kingdom and as Sales Manager for Scandinavia. He became
Director, European Sales in April 1985, and was promoted to Division Vice
President, Sales and Marketing, Europe in 1987. In June 1990 he was elected
Vice President, European Marketing and Sales, and in August 1994, he was elected
Vice President, Marketing and Sales, European Division.
Alfred J. Novak was elected Vice President and Chief Financial Officer in August
1989 and assumed the additional title of Treasurer from August 1991 until June
1994. He joined the Company in April 1984 as Manager, Affiliate Operations and
in February 1987 was elected President and Chief Executive Officer of Norland
Corporation, a former subsidiary of the Company. In July 1987, he was elected
Vice President, Corporate Development and subsequently in February 1988 he was
elected Vice President, Administration.
Barbara G. Ramseyer was elected Vice President, Regulatory Affairs and Quality
Assurance in August 1991. Prior to joining the Company she was Director-
Corporate Regulatory Affairs for the Hospital Products Group of Pfizer
Corporation since 1984.
Egbert Ratering joined the Company's subsidiary in Roden, The Netherlands, in
March 1974 as Finance and Accounting Manager. He became European Controller in
1978, and was promoted to Director of Finance, Europe in July 1984. In March
1987 he was promoted to Division Vice President, Finance, Europe and was elected
Vice President, European Operations in June 1990. In August 1994, he was
elected Vice President, Operations, European Division.
Fernando V. Sanchez joined the Company in January 1991 as Vice President and
Controller. Prior to joining the Company he was Vice President, Finance for
Racal-Milgo, Inc., from June 1988. For three years prior, he served as
Controller for Racal-Milgo, Inc.
George von Klan joined the Company in April 1984 as Director of Sales, Europe
and the Middle East. In February 1985, he was elected Vice President, European
Marketing. In April 1987, he was elected Vice President, International
Marketing and Sales.
Wilton W. Webster, Jr., founder of Webster, was elected Vice President and
Senior Scientific Advisor of the Company in April 1994, upon the merger of
Webster with a Company subsidiary. He served as President, Chief Executive
Officer and Chief Engineer of Webster from its inception to April 1993. From
April 1993 he served as Vice President and Chief Engineer, and Vice President,
Research and Development and Chief Engineer from April 1994 to the present date.
The executive officers hold office for one year or until their successors are
elected by the Board of Directors.
Part II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters.
The Company's common stock is traded in the over-the-counter market and is
quoted in the NASDAQ National Market System under the symbol CORD. The
following table sets forth the high and low sale prices of the Company's common
stock for the period from July 1, 1992 through June 30, 1994 reported in the
NASDAQ National Market System. Sale prices represent quotations between dealers
without adjustment for retail markups, markdowns or commissions, and may not
represent actual transactions.
Fiscal Year High Sale Low Sale
1993
First Quarter..... $30-3/4 $21-3/4
Second Quarter.... 38 23-1/4
Third Quarter..... 40-1/4 23-1/4
Fourth Quarter.... 32-3/4 21-1/4
1994
First Quarter..... $35-1/2 $27-3/4
Second Quarter.... 50-1/2 31-1/2
Third Quarter..... 54-1/2 41-1/4
Fourth Quarter.... 54-1/4 38
As of August 22, 1994, the number of shareholders of record of the common stock
was 1,120. The Company has not paid cash dividends to date and has no present
intention to do so (see Note 4 of Notes to Consolidated Financial Statements).
Item 6. Selected Financial Data
Five-Year Summary of Operations and Financial Information (restated)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net sales $336,542 $267,446 $230,477 $202,560 $165,689
Income from continuing opera-
tions before income taxes,
equity in loss of Theratek
International, Inc. and
cumulative effect of
accounting change $ 58,380 $ 42,709 $ 35,157 $ 27,200 $ 17,495
Provision for income taxes 20,889 11,243 9,426 7,115 4,270
Equity in loss of Theratek
International, Inc. - - - - (2,880)
Income from continuing
operations before cumulative
effect of accounting change $ 37,491 $ 31,466 $ 25,731 $ 20,085 $ 10,345
Earnings per share:
Income from continuing
operations before cumulative
effect of accounting change $ 2.27 $ 1.94 $ 1.65 $ 1.32 $ .70
Total assets $288,127 $210,519 $171,986 $143,635 $146,654
Long-term liabilities $ 9,128 $ 7,993 $ 9,677 $ 29,948 $ 36,885
Cash dividends declared per
common share $ - $ - $ - $ - $ -
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Cash and cash equivalents increased $6.5 million (15%) to $48.5 million at June
30, 1994 compared to June 30, 1993. Working capital increased by $33.7 million
in the same period, and the current ratio remained constant at 2.7. The
long-term debt to equity ratio remained constant at approximately zero. During
1994, cash generated from operations was $41.7 million compared to $32.4 million
in 1993. The $9.3 million increase was principally due to increased income
before cumulative effect of accounting change and higher accounts payable and
accrued expenses balances, offset in part by cash invested in higher accounts
receivable and inventory levels.
Cash used in investing activities increased $16.3 million from $14.5 million in
1993 to $30.8 million in 1994. The principal components of the increase were
additions to property, plant and equipment which were $7.2 million higher in
1994 than in 1993 and purchases of short-term and other investments of $9.1
million. Most of the increase in capital additions was attributable to the
expansion of manufacturing operations.
Cash of $4.4 million was used in financing activities in 1994, a $14.6 million
increase from the $10.2 million provided by such activities in 1993. The
principal causes of the increase were lower additions to short-term borrowings
in Europe, lower proceeds from the issuance of common stock and an increase in
the repurchases of common stock.
Total assets increased $77.6 million to $228.1 million at June 30, 1994 from
$210.5 million at June 30, 1993. The increase occurred principally in the
following areas:
- - - Cash and cash equivalents increased $6.5 million for the reasons outlined
above.
- - - Short-term investments increased by $7.1 million.
- - - Accounts receivable increased $22.3 million (37%), due principally to the
sales increase in the fourth quarter of 1994, where sales grew $25.0
million (36%) over the fourth quarter of 1993.
- - - Inventories increased by $11.1 million (30%) to meet the increased demand
for the Company's products, evidenced by the growth rate in fourth quarter
sales indicated above.
- - - Deferred income taxes (current plus long-term) increased $12.7 million
mainly due to the adoption of a new accounting standard for income taxes
(see Note 6 of Notes to Consolidated Financial Statements).
- - - Net property, plant and equipment increased $12.2 million due to higher
spending worldwide on projects associated with the interventional and
diagnostic cardiology markets.
Current liabilities increased $21.9 million due to increased salaries and
employee benefits, accounts payable balances, and a $5.2 million accrual for a
legal settlement (see Note 8 of Notes to the Consolidated Financial Statements).
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
at either June 30, 1994 or 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 both June 30, 1994 and 1993,
such loans totaled $9.1 million.
In September 1991 the Company subleased ATC which is held under a capitalized
lease until December 31, 2005 (see Note 8 of Notes to Consolidated Financial
Statements). Under the terms of the sublease the sublessee is responsible for
substantially all of the operating expenses of the property, in addition to
rental payments. The sublease gives cancellation options at the end of the
fifth and tenth years to the sublessee which, if exercised, will require
repayments of leasehold improvement allowances by the sublessee to the Company
of $3.8 million and $2.0 million, respectively. The sublessee also has an
option to extend the lease for five years or to purchase the facility at
December 31, 2005. The Company has accrued for future costs relating to the
discounted shortfall in rental income compared to the underlying payments over
the remaining term of the capitalized lease. In November 1993, the sublessee
announced that the division that currently subleases ATC is for sale. The
Company has not been notified by the sublessee whether or not to exercise its
option to cancel the sublease on December 31, 1996. In the event that the
sublessee does exercise the cancellation option, the Company believes the
proceeds of $3.8 million from the repayment of leasehold improvement allowances
by the sublessee, combined with the current reserve for future costs, will be
sufficient to cover the carrying costs of the building until a replacement
tenant can be found. Accordingly, the Company does not believe that cancellation
of the sublease would have a material effect on the future liquidity or
financial condition of the Company.
Management anticipates that cash generated from operations and utilization of
its credit lines, if necessary, 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, if any, of cancellation of the ATC sublease by the sublessee.
On a long-term basis, management will continue to address the Company's
liquidity requirements and implement necessary financing strategies.
Results of Operations:
Sales
Net sales in fiscal 1994 were $336.5 million, an increase of $69.1 million (26%)
from fiscal 1993. Sales in fiscal 1993 were $267.4 million, $37.0 million (16%)
higher than fiscal 1992. Had currency exchange rates remained constant
throughout the periods, the increases in sales in 1994 over 1993 and in 1993
over 1992 would have been 32% and 15%, respectively.
1994 compared to 1993:
Sales of angiographic products were $320.6 million in 1994, an increase of $70.3
million (28%). U.S. sales, which accounted for 44% of worldwide angiographic
products sales in 1994 and 45% in 1993, increased 24% due principally to higher
unit sales volumes of interventional cardiology products (PTCA balloon
catheters, PTCA guiding catheters and PTCA steerable guidewires).
Interventional cardiology sales accounted for 31% of total U.S. angiography
sales in 1994, compared to 18% in 1993. Foreign sales increased by 31% over 1993
(had currency exchange rates remained constant throughout the periods, this
increase would have been 43%), due principally to higher unit sales volumes of
interventional cardiology products in Europe and the Far East.
Sales of neuroscience products were $16.0 million in 1994, a decrease of $1.2
million (7%) from 1993. Most of the decrease was due to adverse currency
exchange rate translation effects in Europe; had currency exchange rates
remained constant throughout the periods, the decrease in worldwide
neuroscience products sales would have been 1%.
1993 compared to 1992:
In 1993 angiographic products sales were $250.3 million, $36.6 million (17%)
higher than 1992. U.S. sales increased 8% due principally to higher unit sales
volumes of interventional cardiology products, and, to a lesser extent,
increased sales volumes of electrophysiology products. U.S. sales accounted for
45% of worldwide angiography sales in 1993 compared to 49% in 1992. Most of the
increase in angiography sales arose in markets outside the U.S., where sales
grew by 26% from 1992. Had currency exchange rates remained constant throughout
the periods, this increase would have been 25%. The increase in foreign
angiography sales was principally due to higher unit sales volumes of
interventional cardiology catheters and diagnostic cardiology catheters.
Sales of neuroscience products were $0.4 million (2%) higher than 1992, due
principally to higher sales of pressure monitoring and drainage systems and
other products. At constant currency exchange rates, the year-to-year increase
would have been 1%.
Operating Costs and Expenses
Cost of goods sold as a percent of net sales was 40% in 1994, compared to 39% in
1993 and 40% in 1992. The one percentage point decrease in the 1994 gross
profit margin compared to 1993 was principally due to higher royalty expenses
on higher worldwide sales of PTCA balloon catheters. Under the terms of a
settlement agreement with C. R. Bard, in December 1993, the Company elected to
pay a license fee for the license of PTCA balloon catheter technology.
Utilizing a five year amortization period from the agreement date of May 1991,
the Company expensed $1.9 million of the $3.0 million license fee in 1994, of
which $1.3 million related to the period from May 1991 to June 1993. Royalty
expenses, which included the $1.9 million license fee, were 2% of sales in 1994
compared to 1% in 1993. The Company's gross profit margin improved in 1994 due
to the favorable effect of increased sales of higher margin interventional
cardiology products, but this was offset by unfavorable currency exchange rate
effects upon European gross profit margins caused by currency devaluations in
some countries and a stronger U.S. dollar. The one percentage point increase
in the gross profit margin in 1993 compared to 1992 was principally due to a
more favorable sales mix which arose from increased sales of higher margin
products.
Research and development expenses were $26.0 million in 1994, an increase of
$5.8 million (29%) over 1993. Most of the increase was due to higher spending
on interventional cardiology, electrophysiology and neuroradiology products.
Research and development expenses increased $0.3 million (2%) to $20.1 million
in 1993 compared to 1992; most of the increase was attributable to higher
spending on electrophysiology and neuroradiology products. Had currency
exchange rates remained constant throughout the periods, research and
development expenses would have been 32% higher in 1994 compared to 1993, and
approximately the same in 1993 as 1992. As a percentage of net sales, research
and development expenses were 8% in 1994 and 1993 and 9% in 1992.
Selling, general and administrative ("SG&A") expenses were $115.8 million in
1994, $21.7 million (23%) higher than 1993. The factors that contributed most
to the increase were higher salary and fringe benefit expenses due to expansions
of the sales forces in the U.S. and Europe; higher travel, sales commissions and
promotional expenses incurred as a result of the increase in worldwide sales;
higher legal costs incurred in the defense of patent suits and other litigation,
and costs of approximately $1.3 million related to the acquisition of Webster
(see Note 3 of Notes to Consolidated Financial Statements). In 1993, SG&A
expenses were $94.1 million, $11.9 million (15%) higher than 1992. The increase
was caused by most of the factors that affected 1994, namely higher employee
related expenses, travel, commissions and promotional costs. Had currency
exchange rates remained constant throughout the periods, the increases in SG&A
expenses in 1994 compared to 1993 and in 1993 compared to 1992 would have been
28% and 13%, respectively. As a percentage of net sales, SG&A expenses were 34%
in 1994, 35% in 1993 and 36% in 1992.
Other Expenses (Income)
Net interest and other expense was $2.4 million in 1994 compared to $5.4 million
in 1993, a decrease of $3.0 million (56%). Other expense in 1994 contained an
accrual of $5.2 million related to a legal settlement (see Note 8 of Notes to
Consolidated Financial Statements), but this was more than offset by higher
interest income on higher average invested cash balances, lower foreign currency
transaction losses on intercompany purchases of inventory, and lower losses from
reserves for an uncollectible investment and other items which did not recur.
Comparing 1993 with 1992, net interest and other expense was $4.8 million
higher; the increase was attributable to higher foreign currency transaction
losses and the non-recurring reserves mentioned previously.
Income Taxes
Expressed as a percent of pretax income, the income tax provisions for 1994,
1993 and 1992 were 36%, 26% and 27%, respectively. The ten percentage point
increase in 1994's rate compared to 1993 was principally due to an increase in
the U.S. effective rate resulting from the adoption of a new accounting standard
for income taxes at the beginning of fiscal 1994 (see Note 6 of Notes to
Consolidated Financial Statements). In 1993, the effective rate was one
percentage point lower than 1992, principally due to lower effective rates in
Europe which arose from the utilization of net operating loss carryforwards in
France as a result of the generation of profits in that subsidiary compared to
losses in prior years for which there was no carryback benefit.
Cumulative Effect of Accounting Change
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The cumulative effect on
prior periods of this accounting change of $10.1 million or $0.61 per share is
reported as a one-time benefit in the Consolidated Statement of Operations
for 1994.
Net Income
Income before the cumulative effect of an accounting change was $37.5 million in
1994, an increase of $6.0 million (19%) over 1993. Net income was $47.6 million
in 1994, $16.1 million (51%) higher than 1993. In 1993 both income before the
cumulative effect of an accounting change and net income were $31.5 million,
$5.7 million (22%) higher than 1992.
Earnings per share before the cumulative effect of an accounting change was
$2.27 in 1994, $0.33 (17%) higher than 1993. Net income per share in 1994 was
$2.88, $0.94 (48%) higher than 1993. Earnings per share before the cumulative
effect of an accounting change and net income per share were both $1.94 in 1993,
$0.29 (18%) higher than 1992.
Item 8. Financial Statements and Supplementary Data
See index to financial statements and financial statement schedules on page 13.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Part III
The information required by Item 10 - Directors and Executive Officers of the
Registrant (other than information as to executive officers set forth in Part I
on pages 5, 6 and 7), Item 11 - Executive Compensation, Item 12 - Security
Ownership of Certain Beneficial Owners and Management and Item 13 - Certain
Relationships and Related Transactions is incorporated in this Report by
reference from the proxy statement to be filed at least 20 business days prior
to the Company's 1994 Annual Meeting of Stockholders to be held on October 27,
1994.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial statements and financial statement schedules
The financial statements and schedules listed in the
following index are filed as part of this annual report:
(ITEM 14(a)(i) and (ii))
Page
Independent Auditors' Report............................. 14
Management's Responsibility for Financial Reporting...... 15
Consolidated Statements of Operations for the three
years ended June 30, 1994................................ 16
Consolidated Balance Sheets at June 30, 1994 and 1993.... 17-18
Consolidated Statements of Shareholders' Equity for the
three years ended June 30, 1994.......................... 19
Consolidated Statements of Cash Flows for the three years
ended June 30, 1994...................................... 20
Notes to Consolidated Financial Statements............... 21-34
2. Schedules for the three years ended June 30, 1994:
V-Property, Plant and Equipment....................... 35
VI-Accumulated Depreciation and Amortization of
Property, Plant and Equipment....................... 36
VIII-Valuation and Qualifying Accounts................... 37
IX-Short-Term Borrowings............................... 38
X-Supplementary Income Statement Information.......... 38
Schedules other than those listed above are omitted because
they are not applicable or the required information is shown
in the financial statements or notes thereto.
(b) Report on Form 8-K
The Company filed a report on Form 8-K dated April 25, 1994 as to:
Item 2. The acquisition of Webster. The transaction was structured
as a tax-free reorganization of Webster and has been accounted for
as a pooling of interests.
Independent Auditors' Report
The Board of Directors and Shareholders
Cordis Corporation
We have audited the accompanying consolidated balance sheets of Cordis
Corporation and its subsidiaries as of June 30, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1994. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cordis Corporation and its
subsidiaries as of June 30, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 6 of Notes to Consolidated Financial Statements, the
Company changed its method of accounting for income taxes effective July 1, 1993
as required by Statement of Financial Accounting Standards No. 109.
Deloitte and Touche LLP
Miami, Florida
August 10, 1994
Management's Responsibility for Financial Reporting
Management is responsible for the preparation as well as the integrity and
objectivity of the Company's financial statements. The financial statements
have been prepared in conformity with generally accepted accounting principles
and, accordingly, include amounts which represent the best estimates and
judgements of management.
While no system of internal control can ensure elimination of errors and
irregularities, the systems employed by the Company have been designed to
provide reasonable assurance that assets are safeguarded, policies and
procedures are followed and transactions are properly executed and reported.
These systems are periodically reviewed and modified in response to changing
conditions.
The Audit Committee of the Board of Directors, which is comprised of directors
who are not officers or employees of the Company, meet with senior management,
the chief financial officer, the Company's internal auditor and the independent
certified public accountants to review audit plans and results as well as
management's actions taken in discharging its responsibilities for accounting,
financial reporting and internal control systems. The Audit Committee reports
its findings to the Board of Directors and also recommends the selection and
engagement of independent certified public accountants. Management, the
internal auditor and the independent certified public accountants have direct
and confidential access to the Audit Committee.
Robert C. Strauss
President and Chief
Executive Officer
Alfred J. Novak
Vice President and
Chief Financial Officer
Cordis Corporation
Consolidated Statements of Operations
Three Years ended June 30, 1994
(Dollars in thousands except per share amounts)
1994 1993 1992
Net sales $336,542 $267,446 $230,477
Operating costs and expenses:
Cost of goods sold 133,992 105,097 92,782
Research and development 25,959 20,139 19,793
Selling, general and administrative 115,837 94,092 82,185
Total operating costs and expenses 275,788 219,328 194,760
Operating profit 60,754 48,118 35,717
Other expenses (income):
Interest expense 1,737 1,639 3,156
Interest income (2,102) (1,185) (1,024)
Other, net 2,739 4,955 (1,572)
Total other expenses 2,374 5,409 560
Income before income taxes and
cumulative effect of accounting
change 58,380 42,709 35,157
Provision for income taxes 20,889 11,243 9,426
Income before cumulative effect of
accounting change 37,491 31,466 25,731
Cumulative effect of accounting change 10,115 - -
Net income $ 47,606 $ 31,466 $ 25,731
Earnings per share:
Income before cumulative effect of
accounting change $ 2.27 $ 1.94 $ 1.65
Cumulative effect of accounting change .61 - -
Net income $ 2.88 $ 1.94 $ 1.65
See accompanying notes.
Cordis Corporation
Consolidated Balance Sheets
At June 30, 1994 and 1993
(Dollars in thousands)
1994 1993
Assets
Current assets:
Cash and cash equivalents $ 48,531 $ 42,042
Short-term investments, at cost 7,055 -
Accounts receivable (less allowance for doubtful
accounts of $2,207 in 1994 and $1,661 in 1993) 82,502 60,220
Inventories:
Finished goods 25,770 19,194
Work-in-process 12,483 10,179
Raw materials and supplies 9,913 7,672
48,166 37,045
Deferred income taxes 10,350 3,810
Other current assets 5,942 3,764
Total current assets 202,546 146,881
Property, plant and equipment, at cost:
Land 5,045 4,829
Buildings and improvements 54,836 49,940
Leasehold improvements 3,532 2,457
Machinery and equipment 61,702 51,821
Construction in progress 10,641 4,403
135,756 113,450
Less accumulated depreciation and amortization 64,509 54,386
71,247 59,064
Deferred income taxes 6,844 663
Other assets 7,490 3,911
$288,127 $210,519
See accompanying notes.
Cordis Corporation
Consolidated Balance Sheets
At June 30, 1994 and 1993
(Dollars in thousands)
1994 1993
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 9,057 $ 9,092
Accounts payable 10,916 6,792
Accrued salaries and employee benefits 25,373 15,797
Accrued taxes 7,926 6,542
Accrued litigation settlement 5,180 -
Other accrued expenses 11,850 11,213
Income taxes 5,245 3,892
Current portion of long-term debt 613 903
Total current liabilities 76,160 54,231
Long-term liabilities:
Long-term debt 1,894 1,112
Other 7,234 6,881
Total long-term liabilities 9,128 7,993
Total liabilities 85,288 62,224
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $1 par value; authorized 2,500,000
shares; none issued - -
Common stock, $1 par value; authorized 50,000,000
shares, issued and outstanding 16,001,206 shares
in 1994 and 15,920,307 shares in 1993 16,001 15,920
Capital in excess of par value 62,016 58,808
Retained earnings 115,658 68,052
Foreign currency translation adjustments 9,164 5,515
Total shareholders' equity 202,839 148,295
$288,127 $210,519
See accompanying notes.
Cordis Corporation
Consolidated Statements of Shareholders' Equity
Three years ended June 30, 1994
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Foreign
Capital Currency
in Trans-
Excess lation
Common Stock of Par Retained Adjust-
Shares Amount Value Earnings ments Total
Balance at
June 30, 1991:
<S> <C> <C> <C> <C> <C> <C>
As previously reported 13,874 $13,874 $52,555 $ 9,522 $ 3,654 $ 79,605
Pooling of interests
with Webster 1,124 1,124 (1,018) 1,333 - 1,439
As restated 14,998 14,998 51,537 10,855 3,654 81,044
Stock issued under
employee retirement and
stock option plans 151 151 2,509 - - 2,660
Foreign currency
translation adjustments 9,992 9,992
Net income - - - 25,731 - 25,731
Balance at
June 30, 1992 15,149 15,149 54,046 36,586 13,646 119,427
Stock issued under
employee retirement
and stock option
plans 616 616 6,472 - - 7,088
Issuance of stock 337 337 1,640 - - 1,977
Tax benefit from exercise of
stock options - - 410 - - 410
Stock issued under employee
performance award plan 31 31 893 - - 924
Purchases and retirement
of common stock (213) (213) (4,653) - - (4,866)
Foreign currency
translation adjustments - - - - (8,131) (8,131)
Net income - - - 31,466 - 31,466
Balance at
June 30, 1993 15,920 15,920 58,808 68,052 5,515 148,295
Stock issued under
employee retirement
and stock option
plans 244 244 3,792 - - 4,036
Tax benefit from exercise
of stock options - - 5,740 - - 5,740
Stock issued under
employee performance
award plan 37 37 1,082 - - 1,119
Purchases and retirement
of common stock (200) (200) (7,406) - - (7,606)
Foreign currency
translation adjustments - - - - 3,649 3,649
Net income - - - 47,606 - 47,606
Balance at
June 30, 1994 16,001 $16,001 $62,016 $115,658 $ 9,164 $202,839
See accompanying notes.
</TABLE>
Cordis Corporation
Consolidated Statements of Cash Flows
Three years ended June 30, 1994
(Dollars in thousands)
1994 1993 1992
Cash flows from operating activities:
Net income $ 47,606 $ 31,466 $ 25,731
Noncash items included therein:
Cumulative effect of accounting change (10,115) - -
Depreciation and amortization 11,424 10,121 12,576
Deferred income tax provision (benefit) 3,096 (3,635) (1,895)
Provisions for inventory obsolescence,
doubtful accounts, uncollectible
investment and other 2,038 4,192 1,962
Currency transaction losses 1,115 2,604 332
Changes in assets and liabilities:
Increase in accounts receivable (22,138) (13,259) (8,102)
Increase in inventories (11,162) (9,252) (2,906)
Increase in other current assets (1,860) (1,315) (1,262)
(Increase) decrease in other assets (1,378) 154 (3,719)
Increase in accounts payable and accruals 21,126 11,477 3,653
Increase in current and deferred
income taxes payable, net 1,379 1,210 3,999
Other, net 613 (1,345) (5,372)
Net cash provided by operating
activities 41,744 32,418 24,997
Cash flows from investing activities:
Additions to property, plant and
equipment (22,771) (15,573) (11,211)
Purchases of short-term and
other investments (9,055) - -
Proceeds from the sale of property,
plant and equipment 618 215 408
Proceeds from collections of notes
receivable 417 846 202
Net cash used in investing activities (30,791) (14,512) (10,601)
Cash flows from financing activities:
Bank loans 1,729 7,801 3,175
Debt retirement (1,760) (1,077) (17,752)
Proceeds from the sale of common stock 3,264 8,365 2,096
Repurchases of common stock (7,606) (4,866) -
Net cash (used in) provided by financing
activities (4,373) 10,223 (12,481)
Effect of exchange rate changes on cash (91) (189) 223
Increase in cash and cash equivalents 6,489 27,940 2,138
Cash and cash equivalents:
Beginning of year 42,042 14,102 11,964
End of year $ 48,531 $ 42,042 $ 14,102
See accompanying notes.
Notes to Consolidated Financial Statements
June 30, 1994, 1993 and 1992
1. Summary of significant accounting policies
a. Principles of consolidation
The Consolidated Financial Statements of Cordis Corporation include the accounts
of Cordis Corporation and its subsidiaries (the "Company"). All significant
intercompany transactions have been eliminated.
b. Revenue recognition
The Company's revenue is derived from sales of medical devices. Revenue from
such sales is generally recognized at the time of shipment to customers.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value. Inventory costs include material, labor and manufacturing
overhead.
d. Property, plant and equipment
The lives used in calculating provisions for depreciation and amortization of
the principal assets using the straight-line method are as follows:
Buildings and improvements 10 - 30 years
Leasehold improvements 10 - 20 years
Machinery and equipment 3 - 10 years
e. Earnings per share
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 year. The exercise of outstanding options, computed
under the treasury stock method based upon average stock prices during the year,
has been included in the computation when dilutive. The computation of fully
diluted earnings per share resulted in no material dilution.
f. Foreign currency translation
Foreign currency translation adjustments, which result from translating the
assets and liabilities of foreign subsidiaries into the U.S. dollar, have been
excluded from each component of the Consolidated Statements of Cash Flows.
Aggregate exchange losses resulting from foreign currency transactions during
the years ended June 30, 1994, 1993 and 1992 were $1,115,000, $2,604,000 and
$332,000, respectively, and are included in the Consolidated Statements of
Operations.
g. Cash and cash equivalents
For the purposes of reporting cash flows, cash and cash equivalents include
marketable securities with a maturity of three months or less at acquisition,
and approximate fair values at June 30, 1994 and 1993. One investment,
representing approximately 19% of the recorded balance at June 30, 1994, is a
money market mutual fund maintained with a brokerage firm.
For the years ended June 30, 1994, 1993 and 1992, income taxes paid, net, were
$17,312,000, $13,851,000 and $8,391,000, and interest paid, including interest
on the capitalized lease (see Note 8 of Notes to Consolidated Financial
Statements), was $3,398,000, $3,748,000 and $4,664,000, respectively.
h. Foreign currency contracts
The Company enters into foreign currency contracts as a hedge against assets and
liabilities denominated in foreign currencies. Such assets and liabilities
relate mainly to intercompany purchases of inventory. At the end of each period
foreign currency contract balances are marked to market, and the resulting gain
or loss is recognized in the Consolidated Statements of Operations. At June 30,
1994 and 1993, the Company had approximately $20,500,000 and $3,900,000,
respectively, in contracts to buy or sell various denominations of foreign
currency in the future. At June 30, 1994, based upon the rights of offset
contained in the various foreign currency contract agreements, the carrying
values of such contracts were a current asset of $66,000 and a current liability
of $220,000, which approximated fair value.
i. Reclassifications
Certain amounts in prior years have been reclassified to conform to the 1994
Consolidated Financial Statement presentation.
2. Inventory obsolescence
Cost of goods sold for the years ended June 30, 1994, 1993 and 1992 included
provisions for obsolescence of $1,436,000, $1,061,000 and $994,000,
respectively, for inventory which management considered to be in excess of that
required for future sales. At June 30, 1994 and 1993 inventories are stated net
of allowances for obsolescence of approximately $2,259,000 and $2,472,000,
respectively.
3. Acquisition of Business
During April 1994, the Company completed its acquisition of Webster
Laboratories, Inc. ("Webster"), a California based company engaged in the
design, manufacture and marketing and sale of electrophysiology catheters.
The acquisition was achieved through the merger between Webster and one of the
Company's subsidiaries. The Company issued approximately 1.67 million shares of
common stock for all the common stock of Webster, and assumed an additional
192,000 shares of Webster's outstanding stock options. The transaction was
accounted for as a pooling of interests; accordingly, the Company's financial
statements for prior years have been restated to reflect the merger. Webster
previously prepared its financial statements on a November 30 fiscal year end
basis, however, the restated financial statements include Webster's financial
results prepared on a June 30 fiscal year end basis. Webster, renamed Cordis
Webster, Inc., has changed its fiscal year end to June to conform to the
Company's year end. Summarized financial statements for the years ended June
30, 1993 and 1992 are as follows (in thousands):
1993 1992
Sales Revenue
Cordis $255,458 $222,959
Webster 11,988 7,518
Total $267,446 $230,477
Net Income
Cordis $ 29,060 $ 24,014
Webster 2,406 1,717
Total $ 31,466 $ 25,731
Total Assets
Cordis $200,401 $168,154
Webster 10,118 3,832
Total $210,519 $171,986
4. Notes payable and long-term debt
Notes payable:
The Company's European subsidiaries have various credit lines denominated in
local currencies which are available to provide working capital and to hedge
foreign exchange exposures. The total amount of credit available under these
agreements was $26,200,000 at June 30, 1994. Amounts outstanding were
$9,057,000 at June 30, 1994 and $9,092,000 at June 30, 1993, with interest rates
ranging from 6-1/2% to 18-1/2% throughout the years ended June 30, 1994
and 1993.
Long-term debt:
The Company has a $25 million revolving line of credit and a $2 million letter
of credit facility with a U.S. bank, which terminates on December 31, 1996. A
one year extension of the termination date may be granted annually at the
discretion of the lender. During the revolving credit period, the Company has
the option of borrowing at the prime interest rate, or at the London Interbank
Offered Rate plus 1-1/4%. A facility fee of 1/4% of the unused portion of the
$25 million commitment is payable quarterly. The agreement contains various
covenants, which require the Company to maintain certain financial ratios and
meet certain net worth and indebtedness tests, and which restrict the payment
of cash dividends by the Company. No borrowings were outstanding under the
agreement at June 30, 1994 or 1993. Interest rates ranged from 6% to 7-1/4%
throughout the years ended June 30, 1994 and 1993.
At June 30, 1994 and 1993, the Company's European subsidiaries had long-term
borrowings totaling $2,447,000 and $1,930,000, respectively, under several
agreements. These loans are denominated in European currencies at interest
rates ranging from 8% to 9-3/4% throughout the periods, due at various times
through January 1999. One of the loans outstanding at June 30, 1993 was secured
by tangible fixed assets; this loan was repaid in fiscal 1994. The carrying
amounts of these loans approximated their fair values at June 30, 1994 and 1993.
Principal payments on existing long-term debt for the fiscal years ending
June 30, are as follows: 1995 - $613,000; 1996 - $578,000; 1997 - $605,000;
1998 - $390,000; 1999 - $321,000.
5. Stock option plans
The Cordis Corporation Non-Qualified Stock Option Plan ("Non-Qualified Plan")
authorizes grants of options to purchase up to 1,875,000 shares of the Company's
authorized but unissued common stock. The options granted pursuant to the Plan
either are exercisable after one year from the date of grant or vest in
increments over four years, must be exercised within either five or ten years
depending on the date of the grant, and must be granted at a price not less than
the market value on the date of grant.
At June 30, 1994, awards to purchase 1,825,830 shares under the Non-Qualified
Plan (net of cancellations and repurchases) had been granted. There are 49,170
shares available for future grants under the Non-Qualified Plan. Of the options
granted, 178,930 shares were exercised under the Non-Qualified Plan during 1994.
At June 30, 1994 and 1993, 333,429 options and 337,110 options, respectively,
were exercisable under the Non-Qualified Plan.
The Cordis Corporation Incentive Stock Option Plan of 1982 ("Option Plan")
expired by its terms in October 1992. In 1994, 19,225 shares were exercised
under the Option Plan. No options were granted under this plan in either fiscal
1994 or fiscal 1993, and 5,775 options and 27,125 options, respectively, were
outstanding and exercisable at June 30, 1994 and 1993. Options under the Option
Plan qualify as "incentive stock options" under the Economic Recovery Tax Act of
1981.
The Webster Laboratories, Inc. 1992 Stock Plan ("Webster Plan"), was adopted by
the Board of Directors of Webster in June 1992 (see Note 3 of Notes to
Consolidated Financial Statements). Under the Webster Plan, awards to purchase
412,000 shares had been granted at June 30, 1994. During fiscal 1994, 23,969
shares were exercised, and at June 30, 1994 and 1993, 79,195 options and 44,212
options were exercisable, respectively. The Webster Plan options were granted
for a term of ten years at an exercise price fixed by the Webster Plan
administrator, and are exercisable at such times as set forth in each individual
option agreement.
The Cordis Corporation Director Non-Qualified Stock Option Plan provides
incentives in the form of stock option grants for the non-employee members of
the Company's Board of Directors. Of the 200,000 shares authorized, 56,000 have
been granted to Board members through June 30, 1994, and 38,000 and 28,000 of
these were exercisable, respectively, at June 30, 1994 and 1993. During 1994,
options for 4,000 shares were exercised. The options, which are granted
automatically each year, vest in full one year after the anniversary of the date
of the grant, must be exercised within five years and are granted at a price
equal to the market value on the date of the grant.
A summary of option transactions follows:
<TABLE>
<CAPTION>
1994 1993 1992
No. of Option No. of Option No.of Option
Shares Price per Share Shares Price per Share Shares Price per Share
<S> <C> <C> <S><C> <C> <C> <S><C> <C> <C> <S><C>
Options outstanding
at beginning of
year 1,164,693 $ 0.88 to $36.75 1,391,619 $ 0.28 to $36.75 1,206,491 $ 0.28 to $36.75
Options granted 322,107 $ 7.11 to $49.25 379,670 $ 0.88 to $26.75 317,103 $ 0.88 to $35.50
Options exercised (226,124) $ 0.88 to $36.75 (594,834) $ 0.28 to $27.25 (130,725) $14.50 to $19.88
Options canceled (14,242) $ 0.88 to $29.25 (11,762) $ 3.55 to $36.75 (1,250) $19.88 to $27.25
Options outstanding
at end of year 1,246,434 $ 0.88 to $49.25 1,164,693 $ 0.88 to $36.75 1,391,619 $ 0.28 to $36.75
</TABLE>
The income tax benefits derived from the exercise of non-qualified stock options
and disqualifying dispositions of incentive stock options, when realized, are
credited to capital in excess of par value.
6. Income taxes
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 year ended June 30, 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 June 30, 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 Statement of Financial
Accounting Standards No. 96 ("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. Under SFAS No. 96, tax
credits are reflected as reductions of income tax expense using the flow through
method in the year they are utilized.
The distribution of income before income taxes and cumulative effect of
accounting change between domestic and foreign sources was as follows (in
thousands):
1994 1993 1992
Domestic $ 36,219 $ 21,600 $ 18,417
Foreign 22,161 21,109 16,740
Total $ 58,380 $ 42,709 $ 35,157
The provision (benefit) for income taxes consists of (in thousands):
1994 1993 1992
Current:
Federal $ 8,980 $ 4,937 $ 1,515
State 1,169 698 420
Foreign 7,644 9,243 9,386
17,793 14,878 11,321
Deferred:
Federal 3,149 (2,256) (12)
State 257 (84) (4)
Foreign (310) (1,295) (1,879)
3,096 (3,635) (1,895)
Provision for income
taxes $ 20,889 $ 11,243 $ 9,426
The tax effect of the significant temporary differences which comprised the
deferred tax assets and liabilities at June 30, 1994 was as follows (in
thousands):
Assets:
Discontinued operations $ 5,124
Intercompany profit adjustments in
inventories and other assets 4,527
Asset valuation reserves 4,122
Net operating loss carryforwards 2,485
Employee benefits 1,930
Depreciation 1,686
Other accrued expenses 745
Other 138
20,757
Valuation allowance (2,618)
Total deferred tax assets 18,139
Liabilities:
Employee benefit plans (940)
Other (5)
Total deferred tax liabilities (945)
Net deferred tax asset $17,194
The valuation allowance relates primarily to net operating loss carryforwards of
the Company's European subsidiaries. The reserve decreased during 1994 due to
the utilization of net operating losses. As of June 30, 1994 the European
subsidiaries had a net operating loss carryforward of approximately $6,600,000.
As permitted under SFAS No. 109, prior years' financial statements have not been
restated. The principal temporary differences under SFAS No. 96 in the deferred
tax (benefit) provision were (in thousands):
1993 1992
Intercompany profit adjustments in
foreign inventories $(1,339) $ (122)
Asset valuation reserves:
Domestic (271) (4)
Foreign - 197
Foreign research and development
credits - (1,962)
Deferred expenses (1,363) -
Other items, net (662) (4)
Total $(3,635) $(1,895)
The effective income tax rates in the Consolidated Statements of Operations
differ from the statutory federal income tax rates as follows:
1994 1993 1992
Statutory U.S. income tax rate 35.0% 34.0% 34.0%
Increase (decrease) resulting from:
Foreign statutory tax rates differential (.2) 1.7 3.8
Foreign operating loss for which no carryback
benefit is available - .2 1.1
Utilization of net operating losses (1.6) (8.4) (16.4)
Minimum tax - 2.0 1.8
Foreign tax credits - (9.3) -
Other items, net 2.6 6.1 2.5
Effective tax rates 35.8% 26.3% 26.8%
Undistributed earnings of foreign subsidiaries of $76.6 million at June 30, 1994
are indefinitely reinvested in foreign operations; accordingly no provision has
been made for income taxes that might be payable upon remittance. It is not
practical to estimate the amount of tax that might be payable on the eventual
remittance of such earnings. On remittance, certain foreign countries impose
withholding taxes that are then available for use as credits or deductions
against U.S. tax liability, if any, subject to certain limitations. The amount
of withholding tax that would be payable on remittance of the entire amount of
undistributed earnings at June 30, 1994 would approximate $3.9 million.
7. Employee benefit plans
The Company has a domestic non-contributory defined benefit pension plan (the
"Plan") which covers substantially all full-time domestic employees. The
Company's policy is to contribute amounts as are necessary on an actuarial basis
to provide assets sufficient to meet the benefits requirements in accordance
with ERISA and federal income tax regulations. The assets of the Plan consist
mainly of common stock and intermediate bond investments.
Net periodic pension cost for each of the three years ended June 30, 1994, 1993
and 1992 included the following components (in thousands):
1994 1993 1992
Service cost - benefits earned during the
period $ 1,661 $ 1,303 $ 1,148
Interest cost on projected benefit obligation 2,875 2,585 2,272
Return on assets (2,011) (2,339) (2,990)
Net amortization and deferral (356) 102 739
Net pension cost $ 2,169 $ 1,651 $ 1,169
The actuarial assumptions used in the three year period ended June 30, 1994 were
as follows:
1994 1993 1992
Discount rates 8% 8-1/2% 8-1/2%
Long-term rate of return on assets 9% 9% 8-1/2%
Rates of increase in compensation levels:
To age 30 9% 9% 10%
To age 40 7% 7% 8%
Thereafter 5% 5% 6%
The following table sets forth the Plan's funded status and amounts recognized
in the Company's Consolidated Balance sheets at June 30, 1994 and 1993 (in
thousands):
1994 1993
Actuarial present value of benefit obligations:
Vested benefit obligation $(31,912) $(27,756)
Nonvested benefit obligation (660) (404)
Accumulated benefit obligation (32,572) (28,160)
Excess of projected benefit obligation over
accumulated benefit obligation (7,056) (5,284)
Projected benefit obligation (39,628) (33,444)
Plan assets at fair value 30,850 27,965
Projected benefit obligation in excess of plan
assets (8,778) (5,479)
Unrecognized net loss 8,323 4,886
Unrecognized prior service cost 3,102 3,633
Unrecognized net transition (asset) originating
July 1, 1986 (3,742) (4,490)
Additional minimum liability (626) -
Accrued pension costs $ (1,721) $ (1,450)
The provisions of Financial Accounting Standards Board Statement No. 87,
"Employers' Accounting for Pensions", require recognition in the balance sheet
of an additional minimum liability up to the unfunded accumulated benefit
obligation and related intangible asset for pension plans with accumulated
benefits in excess of plan assets. Accordingly, an intangible asset equal to
the amount of the additional minimum liability of $626,000 above has been
recorded in other assets in the Consolidated Balance Sheet at June 30, 1994.
The Company sponsors a defined contribution retirement savings plan for its
domestic employees and matches a portion of employee contributions with
contributions of the Company's stock. Contributions made to the plan for the
years ended June 30, 1994, 1993, and 1992 were $752,000, $599,000 and $564,000,
respectively.
Certain of the Company's foreign subsidiaries provide retirement and termination
indemnity benefits for employees through multiemployer and other types of plans
with insurance companies, which cover a majority of full-time employees, based
on compensation and years of service. Pension costs for these plans for the
years ended June 30, 1994, 1993 and 1992 were $968,000, $828,000 and $778,000,
respectively. At June 30, 1994 and 1993, unfunded benefits included in current
and other long-term liabilities were $1,072,000 and $939,000, respectively.
The Company maintains a performance award plan for officers and key senior
employees. Awards are earned upon achievement of certain performance objectives
as determined annually by the Compensation Committee of the Board of Directors.
For the years ended June 30, 1994, 1993 and 1992, provisions for this plan were
$3,146,000, $2,541,000 and $1,005,000 respectively.
The Company has deferred compensation or supplemental retirement agreements with
present and past key officers, directors and employees. The cost of such plans
is being or has been accrued over the period of active employment from the
contract or agreement date. Certain payments, insignificant in amount, are
charged to expense when due. Costs for these agreements approximated $734,000,
$520,000 and $471,000 for the years ended June 30, 1994, 1993 and 1992,
respectively.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.106,
"Employers Accounting for Postretirement Benefits Other Than Pensions" in fiscal
1994, effective for U.S. plans. For foreign plans, SFAS No. 106 is effective for
fiscal year ending June 30, 1996. In November 1992, SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" was issued, effective for the fiscal
year ending June 30, 1995. The Company does not believe that adoption of either
of these standards will have a significant effect on future operations.
8. Commitments and contingencies
Leases:
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, which is held
under a capitalized lease, was a principal asset.
In September 1991, the Company entered into an agreement to sublease ATC. Both
the sublease and the Company's existing capitalized lease expire on December 31,
2005. Under the terms of the sublease, the sublessee is responsible for all
taxes (except taxes on vacant land), insurance and operating expenses, in
addition to rental payments which commenced on January 1, 1992 of $1.2 million
annually which increase annually to $2.2 million in the final year of the
sublease. During 1992 the Company paid the sublessee $5.0 million in leasehold
improvement allowances. The sublease gives cancellation options at the end of
the fifth and tenth years to the sublessee which, if exercised, will require
repayments of leasehold improvement allowances by the sublessee to the Company
of $3.8 million and $2.0 million, respectively. The sublessee also has an
option to extend the lease for five years or to purchase the facility at
December 31, 2005. The reserve for future costs relates to the discounted
shortfall in rental income from the sublease compared to the underlying payments
over the full term of its existing capitalized lease. In November 1993, the
sublessee announced that the division that currently subleases ATC is for sale.
The Company has not been notified by the sublessee whether or not it intends to
exercise its option to cancel the sublease on December 31, 1996. In the event
that the sublessee does exercise the cancellation option, the Company believes
that the proceeds of $3.8 million from the repayment of leasehold improvement
allowances by the sublessee, combined with the current reserve for future costs,
will be sufficient to cover the carrying costs of the building until a
replacement tenant can be found. Accordingly, the Company does not believe that
cancellation of the sublease would have a material effect on the future
liquidity or financial condition of the Company.
The net annual cost of the capitalized lease, which expires in December 2005, is
approximately $2.2 million. Aggregate gross future payments under the
capitalized lease totaled approximately $27,762,000 at June 30, 1994.
Rental income received by the Company in 1994, 1993 and 1992 was $1,333,000,
$1,237,000, and $595,000, respectively. Future minimum sublease payments
receivable under the noncancellable portion are as follows:
Year Ending June 30 Amount
1995 $1,438,000
1996 1,553,000
1997 (6 months) 807,000
At June 30, 1994 and 1993, assets and liabilities of the discontinued operations
are reflected below (in thousands):
1994 1993
Property, plant & equipment, net of accumulated
depreciation and amortization of $12,373 at June
30, 1994 and $10,944 at June 30, 1993 $ 17,805 $ 19,467
Other assets, net 1,307 1,353
Capital lease liability (16,628) (17,380)
Net capital lease asset 2,484 3,440
Reserve for future costs (6,316) (7,912)
(3,832) (4,472)
Amount included in current liabilities 842 988
Net liabilities - non-current $ (2,990) $ (3,484)
The Company has several long-term operating leases which expire at various times
through 2008. Most of the leases contain renewal options and require the
Company to pay for maintenance, taxes and insurance. Rental expenses charged to
operations in 1994, 1993 and 1992 were $2,328,000, $1,867,000 and $1,559,000,
respectively. Future lease commitments are estimated as follows: 1995 -
$2,182,000; 1996 - $1,572,000; 1997 - $1,009,000; 1998 - $662,000; 1999 -
$438,000; thereafter - $1,088,000.
Legal proceedings:
The Company is engaged in various ordinary routine litigation and administrative
proceedings incidental to the business of the Company, some of which involve
claims for substantial amounts of money and include claims for punitive damages.
The Company does not, however, anticipate that any amounts required to be paid
by reason thereof will, in the aggregate, have a material adverse effect on the
financial condition of the Company.
The Company self-insures a portion of its products liability claims and
maintains insurance coverage in excess of that retention. Such insurance may
not cover or indemnify awards of punitive damages. The Company believes its
insurance coverage is adequate to protect it against any product related losses
that could otherwise have a material adverse effect on the financial condition
of the Company.
Pacer product liability litigation
As part of the transaction involving the sale of the Company's pacing operations
in 1987, the purchaser assumed certain contingent liabilities including several
pending lawsuits. However the Company retained liability for any punitive
damages awarded in connection with pacer-related products liability litigation
involving products sold by the Company prior to April 30, 1987. Since 1987
there have been no such punitive damage awards, nor does the Company anticipate
that future awards, if any, would have a material adverse effect on the
financial condition of the Company.
In November 1986 a product liability class action suit was filed against the
Company and others in the United States District Court for the Southern District
of Ohio. The suit seeks compensatory and punitive damages regarding certain of
the Company's pacemakers. In 1989, a second pacemaker class action lawsuit was
filed against the Company in the United States District Court for the Southern
District of California. This case was transferred and consolidated with the
Ohio action in 1990.
The Company has vigorously defended the pacemaker product liability class action
since its inception. In December 1992, the Court conditionally certified the
proceedings as a class action. The Complaint claims substantial compensatory
and punitive damages are due to the class members. However, the number of
claimants and nature and extent of damages allegedly suffered by any purported
class members are not yet known and the Company is unable to meaningfully assess
the likely final outcome of the class action litigation. The Company believes
it has defenses to plaintiffs' claims and, as more fully described below, that
it has available adequate and effective indemnification and insurance coverage.
Beginning in 1986 and thereafter, the Company duly notified its insurance
carriers of the filing of the initial pacemaker class action. In response, the
carriers agreed to provide a defense to the Company, subject to various
reservations of rights. Such insurance may not cover or indemnify against
awards of punitive damages.
In 1987, subsequent to the filing of the pacemaker class action claim, the
Company sold its pacemaker business to TNC Medical Devices Pte, Ltd. ("TNC").
As part of that transaction, TNC agreed to indemnify the Company for contingent
liabilities relating to its pacemaker operations, including the pacemaker class
action litigation and other pacemaker product liability actions, except for any
award of punitive damages. This obligation was guaranteed by Telectronics
Holdings, Ltd., the parent of TNC. In past pacemaker cases, there has never
been an award of punitive damages against the Company.
In November and December 1993, the Company's insurance carriers filed two
separate actions against the Company and TNC in the United States District Court
for the Southern District of Florida, seeking a declaratory adjudication of the
extent of their duties to defend and indemnify the Company for claims made in
the pacemaker class action. Additionally, the carriers seek an adjudication
that, in connection with TNC's acquisition of the Company's pacemaker business,
TMC agreed to assume the primary obligation to defend and indemnify the Company
for the pacemaker product liability litigation. Both insurance actions have
been consolidated with the Ohio action. The Company intends to vigorously
respond to the insurance carriers' lawsuits and urge the court to affirm the
responsibility of the Company's insurance carriers and TNC for any award of
compensatory damages and all defense costs relating to the pacemaker product
liability class action. The Company has filed a motion for partial summary
judgement to affirm the carriers' duty to defend the Company. Only in the event
that the class action plaintiffs are successful in their claims, the Company's
defenses are rejected and there is an adjudication that neither the Company's
insurance carriers nor TNC and its parent have responsibility for any such
liability (or the Company is unable to collect any amounts owed to it pursuant
to the terms of TMC's indemnity or the guarantee of TNC's parent), could these
lawsuits have a material adverse effect on the Company's financial condition.
Based upon current facts, communications with outside counsel and internal
analyses of the cases, Company believes that such an outcome is unlikely.
Other litigation
In December 1988, the Company was sued in the U.S. District Court for the
Southern District of Florida by approximately 160 former Company employees who
became employed by the company which purchased the pacing operations in 1987.
The suit alleged that these employees were entitled to severance benefits and
pay in lieu of notice as a result of their termination of employment with the
Company. In January 1993, the Court granted the Company's cross motion for
summary judgment. The former employees appealed that decision. Approximately
one-half of the former employees voluntarily dismissed their appeal with
prejudice while the remainder are pursuing the appeal.
On or about May 1, 1990 a class action suit was filed by a former employee of
the Company against the Company, the Company's Retirement Plan ("the Plan"), and
the Retirement Plan Administration Committee, in the U.S. District Court for the
Southern District of Florida, alleging that the former employees who became
employed by the purchaser of the pacing operations were entitled to lump sum
distributions under the Company Retirement Plan and that the Company failed to
notify class members of their right under COBRA to elect continued health
insurance coverage under the Company's health insurance plans upon termination
of their employment with the Company, thus entitling the class to statutory
penalties. The District Court Judge granted the Company's motion to dismiss the
lump sum claim. The former employee voluntarily dismissed the COBRA claim and
has appealed the lump sum count. Oral argument was heard by the Eleventh
Circuit Court of Appeals in March 1994 but no decision has been rendered.
In December 1989, the Company's former Middle Eastern distributor filed an
action in the United States District Court for the Southern District of Florida,
alleging breach of contract, intentional interference with business
relationships and wrongful termination and seeking monetary damages in excess of
$8 million against the Company. The Company filed a counterclaim against the
distributor for damages relating to fraud, defamation and breach of contract.
The Company, in order to minimize the risks of exposure to claimed damages in
the litigation and to halt the escalating costs being incurred as a result of
discovery and procedural matters in the case, elected to negotiate and settle
the matter by payment of the sum of $5.2 million to the Plaintiff. This amount
is included in net other expenses in the 1994 Consolidated Statement of
Operations, and in current liabilities in the June 30, 1994 Consolidated Balance
Sheet.
In October 1992, a suit was filed by Schneider (USA) Inc. against the Company in
the United States District Court for the District of Minnesota, Third Division,
alleging that certain of the Company's angiographic catheters and the Company's
guiding catheters infringe a Schneider patent. Discovery proceedings are
continuing, with a cutoff period established for September 1994. The Company
has instituted patent infringement actions against Schneider AG in Great Britain
and Germany alleging that certain Schneider products infringe on the Company's
patents regarding its nylon balloon technology.
It is not expected that the outcomes of the litigation described above, either
individually or in the aggregate, will have a material adverse effect on the
financial condition of the Company.
9. Foreign and domestic operations and segment reporting
The Company operates in a single industry segment: the design, manufacture and
sale of medical devices. These products are sold to hospitals and other medical
institutions and physicians. In order to reduce credit risk, the Company
performs credit evaluations of its customers on a regular basis, and generally
does not require collateral. The Company has a large number of customers
worldwide with no single customer accounting for a significant portion of trade
accounts receivable. At June 30, 1994, the principal geographical regions and
their respective balances included in accounts receivable were as follows (in
thousands):
United States $21,033
Italy 11,530
France 8,556
Spain 8,253
The following presents information on geographic segments for the fiscal years
ended June 30, 1994, 1993 and 1992 (in thousands):
Adjust-
Domestic Foreign ments and
Opera- Opera- Elimina- Consoli-
tions tions tions dated
1994
Sales to unaffiliated customers $174,447 $162,095 $ - $336,542
Transfers between geographic
areas 40,551 14,734 (55,285) -
Total revenues $214,998 $176,829 $(55,285) $336,542
Operating profit from geographic
segments $ 55,326 $ 37,820 $ (3,312) $ 89,834
Research and development (25,959)
General corporate expense (5,860)
Interest income, net 365
Income before income taxes and
cumulative effect of accounting
change $ 58,380
Identifiable assets $118,919 $118,996 $ (5,374) $232,541
Corporate assets 55,586
Total assets at June 30, 1994 $288,127
1993
Sales to unaffiliated customers $136,843 $130,603 $ - $267,446
Transfers between geographic
areas 26,472 12,759 (39,231) -
Total revenues $163,315 $143,362 $(39,231) $267,446
Operating profit from geographic
segments $ 38,203 $ 30,181 $ (1,084) $ 67,300
Research and development (20,139)
General corporate expense (3,998)
Interest (expense), net (454)
Income before income taxes $ 42,709
Identifiable assets $ 81,825 $ 89,732 $ (3,080) $168,477
Corporate assets 42,042
Total assets at June 30, 1993 $210,519
1992
Sales to unaffiliated customers $121,369 $109,108 $ - $230,477
Transfers between geographic
areas 18,540 11,298 (29,838) -
Total revenues $139,909 $120,406 $(29,838) $230,477
Operating profit from geographic
segments $ 34,428 $ 25,818 $ 462 $ 60,708
Research and development (19,793)
General corporate expense (3,626)
Interest (expense), net (2,132)
Income before income taxes $ 35,157
Identifiable assets $ 72,208 $ 87,094 $ (1,418) $157,884
Corporate assets 14,102
Total assets at June 30, 1992 $171,986
Transfers between geographic areas are made at amounts which would approximate
those prices charged to unaffiliated distributors. Operating profits from
geographic segments represent total revenue less cost of goods sold and direct
operating expenses. It excludes research and development expense, general
corporate expense, net interest expense, income taxes, and cumulative effect of
accounting change.
Identifiable assets are those that are identified with the operations in each
geographic area. Corporate assets are cash and cash equivalents and short-term
investments. Total foreign assets at June 30, 1994, 1993 and 1992 are indicated
above. The corresponding liabilities for foreign operations were $41,168,000,
$29,038,000 and $27,136,000, respectively.
10. Quarterly financial data
Quarterly financial data, restated to give effect to the Webster pooling (see
Note 3 of Notes to Consolidated Financial Statements), is as follows (unaudited)
(dollars in thousands except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
As As As As
Previously As Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated Reported Restated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
Net sales $ 69,145 $ 73,147 $ 75,401 $ 79,453 $ 85,043 $ 88,942 $ - $ 95,000
Gross profit 41,838 44,775 44,943 47,893 51,569 54,425 - 55,457
Income before cumulative
effect of accounting
change 7,908 8,723 8,591 9,134 9,936 10,540 - 9,094
Net income 18,023 18,838 8,591 9,134 9,936 10,540 - 9,094
Per share:
Income before cumulative
effect of accounting
change .54 .53 .58 .55 .67 .63 - .55
Net income 1.24 1.15 .58 .55 .67 .63 - .55
1993
Net sales $ 62,515 $ 64,931 $ 61,971 $ 65,118 $ 64,219 $ 67,402 $ 66,753 $ 69,995
Gross profit 38,493 40,345 38,321 40,431 37,631 40,198 39,064 41,375
Net income 6,054 6,576 6,917 7,518 7,743 8,593 8,346 8,779
Net income per share .42 .41 .47 .46 .53 .53 .58 .54
</TABLE>
In December 1993, under the terms of a settlement agreement with C. R. Bard, the
Company elected to pay a license fee for the license of PTCA balloon catheter
technology. Utilizing a five year amortization period from the agreement date
of May 1991, the Company expensed $1.5 million of the $3.0 million license fee
in cost of goods sold in the second quarter of fiscal 1994, of which
approximately $1.3 million ($0.05 per share after tax) related to the period
from May 1991 to June 1993.
In the fourth quarter of fiscal 1994, the Company incurred costs of
approximately $1.3 million ($0.05 per share after tax), included in selling,
general and administrative expenses, related to the Webster merger transaction.
The Company settled a lawsuit in July 1994 in the amount of $5.2 million, for
which it had previously accrued $3.0 million in other expenses during 1994. The
balance of the settlement of $2.2 million ($0.08 per share after tax) was
expensed in the fourth quarter (see Note 8 of Notes to Consolidated Financial
Statements).
11. Common stock purchase rights
On September 12, 1986 the Company's Board of Directors adopted a Rights
Agreement, as subsequently amended, authorizing a dividend distribution on each
share of common stock, $1.00 par value, of the Company's outstanding shares on
the distribution date, as defined, in the form of a right to purchase one-half
of a share of common stock upon the occurrence of certain events. The exercise
price to purchase one-half of a share of common stock, initially established at
$25, is subject to adjustment. The rights become exercisable if an entity,
person or group acquires beneficial ownership of 20% or more of the Company's
outstanding common stock or commences a tender offer that would result in that
entity, person or group acquiring beneficial ownership of 30% or more of the
outstanding common stock of the Company. The rights, which do not entitle
holders to vote or receive dividends, expire on September 22, 1996 and may be
redeemed by the Company at a price of $0.01 per right at any time prior to the
earlier of (i) the tenth day following the public announcement of intent to
acquire the Company's stock as described above or the date a majority of the
Board of Directors becomes aware of an acquiring entity, person or group, as
defined, or (ii) the expiration date. As of June 30, 1994 rights to purchase
8,000,603 shares of common stock were outstanding.
<PAGE>
CORDIS CORPORATION
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In thousands)
Balance
at be- Retire- Balance
ginning Addi- ments or Other at end
of tions sales changes of
period at cost (a) (b) period
Year ended June 30, 1994:
Land $ 4,829 $ 127 $ - $ 89 $ 5,045
Building and improvements 49,940 3,743 (113) 1,266 54,836
Leasehold improvements 2,457 1,233 (238) 80 3,532
Machinery and equipment 51,821 10,702 (2,631) 1,810 61,702
Construction in progress 4,403 6,966 - (728) 10,641
$113,450 $22,771 $(2,982) $ 2,517 $135,756
Year ended June 30, 1993:
Land $ 4,761 $ 237 $ - $ (169) $4,829
Building and improvements 50,413 2,541 (892) (2,122) 49,940
Leasehold improvements 1,363 1,346 (85) (167) 2,457
Machinery and equipment 49,335 10,917 (5,303) (3,128) 51,821
Construction in progress 4,465 532 - (594) 4,403
$110,337 $15,573 $(6,280) $(6,180) $113,450
Year ended June 30, 1992:
Land $ 4,487 $ - $ - $ 274 $ 4,761
Buildings and improvements 46,153 976 (170) 3,454 50,413
Leasehold improvements 959 313 (59) 150 1,363
Machinery and equipment 38,176 8,579 (1,137) 3,717 49,335
Construction in progress 3,098 1,343 - 24 4,465
$ 92,873 $11,211 $(1,366) $ 7,619 $110,337
(a) Includes normal retirements of assets.
(b) Includes reclassifications between categories, and the translation effect
of Statement of Financial Accounting Standards No. 52.
CORDIS CORPORATION
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(In thousands)
Balance Addi-
at be- tions Retire- Balance
ginning charged ments Other at end
of to or sales changes of
period income (a) (b) period
Year ended June 30, 1994:
Buildings and improvements $22,063 $ 2,860 $ (18) $ 644 $25,549
Leasehold improvements 759 323 (192) 17 907
Machinery and equipment 31,564 7,656 (2,106) 939 38,053
$54,386 $10,839 $(2,316) $ 1,600 $64,509
Year ended June 30, 1993:
Buildings and improvements $21,296 $ 2,721 $ (860) $(1,094) $22,063
Leasehold improvements 722 192 (63) (92) 759
Machinery and equipment 31,461 6,825 (5,083) (1,639) 31,564
$53,479 $ 9,738 $(6,006) $(2,825) $54,386
Year ended June 30, 1992:
Buildings and improvements $16,964 $ 2,628 $ (73) $ 1,777 $21,296
Leasehold improvements 551 151 (59) 79 722
Machinery and equipment 24,477 5,965 (952) 1,971 31,461
$41,992 $ 8,744 $(1,084) $ 3,827 $53,479
(a) Includes normal retirements of assets.
(b) Includes reclassifications between categories, and the translation effect
of Statement of Financial Accounting Standards No. 52.
CORDIS CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Addi-
Balance tions Deduc-
at be- charged tions/ Balance
ginning to other at end
of costs & changes of
period expenses (a) period
Allowance for doubtful accounts -
deducted from accounts receivable
in the balance sheet:
Year ended June 30, 1994 $ 1,661 $ 776 $ (230) $ 2,207
Year ended June 30, 1993 $ 1,535 $ 593 $ (467) $ 1,661
Year ended June 30, 1992 $ 1,163 $ 216 $ 156 $ 1,535
Allowance for inventory obsolescence
- deducted from inventory in the
balance sheet:
Year ended June 30, 1994 $ 2,472 $ 1,436 $(1,649) $ 2,259
Year ended June 30, 1993 $ 2,826 $ 1,061 $(1,415) $ 2,472
Year ended June 30, 1992 $ 2,526 $ 994 $ (694) $ 2,826
Allowance for uncollectible
notes receivable - deducted
from other assets in the
balance sheet:
Year ended June 30, 1994 $ 5,422 $ (326) $(1,449) $ 3,647
Year ended June 30, 1993 $ 4,943 $ 524 $ (45) $ 5,422
Year ended June 30, 1992 $ 4,191 $ 752 $ - $ 4,943
Allowance for uncollectible
investment - deducted from
other assets in the balance
sheet:
Year ended June 30, 1994 $ 2,014 $ 152 $ - $ 2,166
Year ended June 30, 1993 $ - $ 2,014 $ - $ 2,014
(a) Includes the translation effect of Statement of Financial Accounting
Standards No. 52.
CORDIS CORPORATION
SCHEDULE IX - SHORT-TERM BORROWINGS
(In thousands)
Maximum Weighted
amount average
out- Average of
standing amount interest
at any out- rates
Balance Weighted month standing during
at end average end during the
of interest during period period
period rate period (1) (2)
Years ended
June 30,
1994 $ 9,057 8.0% $ 9,057 $ 6,604 9.3%
1993 $ 9,092 9.3% $ 9,092 $ 4,217 11.9%
1992 $ 2,638 13.4% $ 2,864 $ 2,120 14.6%
(1) Average amount outstanding during the period is computed by
dividing the total of month-end outstanding principal balances by the
number of periods.
(2) Weighted average interest rate for the year is computed by
dividing the actual short-term interest expense by the average short-term
debt outstanding.
CORDIS CORPORATION
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
Maintenance
and
repairs Royalties Advertising
Year ended June 30, 1994 $ 3,898 $ 7,885 $ 2,993
Year ended June 30, 1993 $ 3,303 $ 1,853 $ 2,768
Year ended June 30, 1992 $ 2,633 $ 1,242 $ 1,858
Exhibits Index
Certain of the exhibits listed below are incorporated by reference to exhibits
to previously filed registration statements or reports of the Company as
indicated in the "Incorporated by Reference to" column.
Incorporated
by Reference to
Ex- Ex-
hibit Registration hibit
No. No. or Report No. Description
2(a) Form S-4 No. 2(a) Agreement and Plan of Reorganization, as
33-52399 dated amended by and among Cordis Corporation, Cordis
February 25, 1994 Acquisition, Inc., Webster Laboratories, Inc.
and certain shareholders of Webster dated as of
January 20, 1994.
3 Form 10-K for 3 Restated Articles of Incorporation of the
year ended Company dated February 9, 1978, and Articles of
June 30, 1983 Amendment thereto dated November 1, 1978.
3(a) Form S-4 No. 3(a) Articles of Amendment to the Company's Restated
33-52399 dated Articles of Incorporation filed with the
February 25, 1994 Florida Secretary of State on November 3, 1993.
3(a) Form 10-K for 3(a) By-Laws of the Company.
year ended
June 30, 1983
10(a) Form 10-K for 10(a) Revolving Credit and Reimbursement Agreement,
year ended dated as of December 30, 1991, between Cordis
June 30, 1992 Corporation as Borrower and NCNB National Bank
of Florida as Lender.
10(a) Form S-4 No. 10(a) Employment Agreement by and among Tony R.Brown,
33-52399 dated Cordis Corporation and Cordis Webster, Inc.
February 25, 1994
10(a) Form S-4 No. 10(a) Employment Agreement by and among Wilton W.
33-52399 dated Webster, Jr., Cordis Corporation and Cordis
February 25, 1994 Webster, Inc.
10(b) Form 10-K for 10(b) Lease Agreement dated as of March 1, 1979,
year ended between the Company and Olympia & York Florida
June 30, 1985 Equity Corp.
10(b) Form 10-K for 10(b) Lease Agreement dated as of September 20, 1991
year ended between the Company and Baxter Diagnostics,Inc.
June 30, 1991
10(d) Form 10-K for 10(d) Cordis Corporation Incentive Stock Option Plan
year ended of 1982.
June 30, 1983
10(d) Form 10-Q for 10(d) Amendment, dated April 13, 1987, to Cordis
quarter ended Corporation Incentive Stock Option Plan of
March 31, 1987 1982.
10(d) Form S-8 No. 10(d) Cordis Corporation Non-qualified Stock Option
33-23668 dated Plan.
August 30, 1988
10(d) Form S-8 No. 10(d) Cordis Corporation Non-qualified Stock Option
33-35304 dated Plan.
June 28, 1990
Exhibits Index Continued
10(d) Form S-8 No. 10(d) Cordis Corporation Non-qualified Stock Option
33-63634 dated Plan.
June 1, 1993
10(d) Form S-8 No. 10(d) Webster Laboratories, Inc. 1992 Stock Plan
33-53835 dated
May 26, 1994
10(d) Form 10-K for 10(d) Cordis Corporation Director Non-qualified Stock
year ended Option Plan.
June 30, 1992
10(d) Form S-8 No. 10(d) Cordis Corporation Director Non-qualified Stock
33-44953 dated Plan.
January 6, 1992
10(d) Form 10-K for 10(d) Cordis Corporation Supplemental Executive
year ended Retirement Plan
June 30, 1992
10(d) Form 10-K for 10(d) Cordis Corporation Salary Deferral Plan
year ended
June 30, 1992
10(d) Form 10-K for 10(d) Amended Cordis Corporation Director Retirement
year ended Policy
June 30, 1992
10(f) Form 10-K for 10(f) Cordis Corporation 1991 Performance Unit Award
year ended Plan
June 30, 1992
10(i) Form 10-Q for 10(i) Acquisition Agreement by and between TNC
quarter ended Medical Device and Cordis Corporation, dated as
March 31, 1987 of April 14, 1987, including amendments thereto
dated April 14, 1987 and April 30, 1987, with
respect to the sale of the Company's worldwide
cardiac pacing operations.
10(j) Form 8-K dated 4 Rights Agreement, dated September 12, 1986
September 12, between the Company and Manufacturers Hanover
1986 Trust Company.
10(j) Form 10-K for 10(j) Amendment No. 1, dated as of September 15, 1989
year ended to the Rights Agreement, dated September 12,
June 30, 1989 1986 between the Company and Manufacturers
Hanover Trust Company.
10(j) Form 10-K for 10(j) Amendment No. 2, dated as of October 12, 1989
year ended to the Rights Agreement, dated September 12,
June 30, 1991 1986 between the Company and Manufacturers
Hanover Trust Company.
10(j) Form 10-K for 10(j) Amendment No. 3, dated as of November 15, 1989
year ended to the Rights Agreement, dated September 12,
June 30, 1991 1986 between the Company and Manufacturers
Hanover Trust Company.
11 - - Computation of earnings per share.
22 - - Subsidiaries of Cordis Corporation.
24 - - Consents of Independent Certified Public
Accountants.
The documents listed herein with the exception of Exhibits, 11, 22, and 24 are
not included in copies of this form. The Company will furnish any of these
documents upon request and payment of a fee to cover its expenses. Requests
should be made to:
Corporate Secretary
Cordis Corporation
P. O. Box 025700
Miami, Florida 33102-5700
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: By Robert C. Strauss
August 24, 1994 Robert C. Strauss
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title
Robert Q. Marston Chairman of the Board of Directors
Robert Q. Marston
Robert C. Strauss Director, President and Chief
Robert C. Strauss Executive Officer
Richard W. Foxen Director
Richard W. Foxen
Donald F. Malin, Jr. Director
Donald F. Malin, Jr.
David R. Challoner Director
David R. Challoner
Wilton W. Webster, Jr. Director
Wilton W. Webster, Jr.
Patricia K. Woolf Director
Patricia K. Woolf
J. L. de Ruyter van Steveninck Director
J. L. de Ruyter van Steveninck
Alfred J. Novak Vice President and Chief
Alfred J. Novak Financial Officer
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(In thousands except per share amounts)
Years ended June 30,
1994 1993 1992
Income:
Income before cumulative effect of
accounting change $ 37,491 $ 31,466 $ 25,731
Cumulative effect of accounting change 10,115 - -
Net income $ 47,606 $ 31,466 $ 25,731
Common shares:
PRIMARY
Weighted average shares outstanding 15,995 15,847 15,093
Potential dilution on exercise
of stock options (1) 557 367 486
Shares included in the computation
of primary earnings per share 16,552 16,214 15,579
FULLY DILUTED
Weighted average shares outstanding 15,995 15,847 15,093
Potential dilution on exercise of
stock options (1) 578 410 496
Shares included in the computation of
fully diluted earnings per share 16,573 16,257 15,589
Earnings per share:
PRIMARY
Income before cumulative effect of
accounting change $ 2.27 $ 1.94 $ 1.65
Cumulative effect of accounting change .61 - -
Net income $ 2.88 $ 1.94 $ 1.65
FULLY DILUTED
Income before cumulative effect of
accounting change $ 2.26 $ 1.94 $ 1.65
Cumulative effect of accounting change .61 - -
Net income $ 2.87 $ 1.94 $ 1.65
(1) Computed under the treasury stock method based on the average price during
the periods for primary earnings per share, and the higher of the average
price during the periods or the end of period closing price for fully diluted
earnings per share.
NOTE: The fully diluted calculation is submitted in accordance with
Regulation S-K item 601(b) (11) although not required by Accounting Principles
Board Opinion No. 15 because it results in a dilution of less than 3%.
Exhibit 22
SUBSIDIARIES OF CORDIS CORPORATION
The significant subsidiaries of the Registrant, all of which are included in
the Consolidated Financial Statements, are as follows:
Jurisdiction
of
Name Incorporation
Cordis International Corporation............................ Delaware
Cordis Holding B.V.......................................... The Netherlands
Cordis Europa N.V........................................... The Netherlands
Exhibit 24
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-23668) pertaining to the Non-Qualified Stock Option Plan of
Cordis Corporation and in the related Prospectus of our report dated August
10, 1994 appearing in the Annual Report on Form 10-K of Cordis Corporation for
the year ended June 30, 1994.
Additionally, we consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 2-87829) pertaining to the Incentive Stock Option
Plan of 1982 of Cordis Corporation and in the related Prospectus of our report
dated August 10, 1994 appearing in the Annual Report on Form 10-K of Cordis
Corporation for the year ended June 30, 1994.
Additionally, we consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 33-35304) pertaining to the Non-Qualified Stock
Option Plan of Cordis Corporation and in the related Prospectus of our report
dated August 10, 1994 appearing in the Annual Report on Form 10-K of Cordis
Corporation for the year ended June 30, 1994.
Additionally, we consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 33-44953) pertaining to the Director Non-Qualified
Stock Option Plan of Cordis Corporation and in the related Prospectus of our
report dated August 10, 1994 appearing in the Annual Report on Form 10-K of
Cordis Corporation for the year ended June 30, 1994.
Additionally, we consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 33-63634) pertaining to the Non-Qualified Stock
Option Plan of Cordis Corporation and in the related Prospectus of our report
dated August 10, 1994 appearing in the Annual Report on Form 10-K of Cordis
Corporation for the year ended June 30, 1994.
Additionally we consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 33-53835) pertaining to the Webster Laboratories,
Inc. 1992 Stock Plan and in the related Prospectus of our report dated August
10, 1994 appearing in the Annual Report on Form 10-K of Cordis Corporation for
the year ended June 30, 1994.
Deloitte and Touche LLP
Miami, Florida
August 24, 1994
