UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-3274
CORDIS CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-0870525
(State or other jurisdiction of (I.R.S. Employer Identifi-
incorporation or organization) cation Number)
14201 N.W. 60th Avenue, Miami Lakes, Florida 33014
(Address of principal executive offices) (Zip Code)
(305) 824-2000
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The registrant had outstanding 14,310,849 shares of common stock
(par value $1.00 per share) as of January 14, 1994.
<PAGE>
CORDIS CORPORATION
FORM 10-Q
THREE MONTHS ENDED DECEMBER 31, 1993
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements ........................ 1
Consolidated Statements of Operations........ 2
Consolidated Balance Sheets ................. 3
Consolidated Statements of Cash Flows ....... 4
Notes to Consolidated Financial Statements .. 5-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................. 7-10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................ 10
Item 6. Exhibits and Reports on Form 8-K............. 12
Signature .................................................. 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial information herein is unaudited.
However, in the opinion of Management, such information
reflects all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation
of the information shown. The financial statements and
notes presented herein do not contain certain
information included in the Company's annual financial
statements and notes.
Results for interim periods are not necessarily
indicative of results expected for the full year.
<PAGE>
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Six Months Ended December 31, 1993 and 1992
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Six Months
1993 1992 1993 1992
Net Sales $ 75,401 $ 61,971 $144,546 $124,486
Operating costs and
expenses:
Cost of goods sold 30,458 23,650 57,765 47,672
Research and
development 5,579 5,122 11,140 10,020
Selling, general and
administrative 26,098 22,837 49,903 44,956
Total operating costs
and expenses 62,135 51,609 118,808 102,648
Operating profit 13,266 10,362 25,738 21,838
Other (income) deductions:
Interest expense, net
and other (738) 891 (976) 3,527
Income before income
taxes and cumulative
effect of accounting
change 14,004 9,471 26,714 18,311
Provision for income
taxes 5,413 2,554 10,215 5,340
Income before
cumulative effect of
accounting change 8,591 6,917 16,499 12,971
Cumulative effect of
accounting change - - 10,115 -
Net income $ 8,591 $ 6,917 $ 26,614 $ 12,971
Earnings per share:
Income before
cumulative effect of
accounting change $ .58 $ .47 $ 1.13 $ .89
Cumulative effect of
accounting change - - .69 -
Net income $ .58 $ .47 $ 1.82 $ .89
See accompanying notes.
<PAGE>
CORDIS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and June 30, 1993
(Dollars in thousands)
December 31 June 30
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 46,533 $ 38,406
Accounts receivable, net 64,271 58,369
Inventories:
Finished goods 20,954 18,506
Work-in-process 10,222 9,213
Raw materials and supplies 8,146 7,002
39,322 34,721
Deferred income taxes 9,541 3,564
Other current assets 3,559 7,583
Total current assets 163,226 142,643
Property, plant and equipment, net of
accumulated depreciation of $57,329
at December 31 and $53,801 at June 30 59,631 57,097
Deferred income taxes 9,665 663
Other assets 3,947 3,888
$ 236,469 $ 204,291
LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities:
Notes payable $ 4,061 $ 9,092
Accounts payable 6,825 5,846
Accrued expenses 35,676 31,087
Income taxes payable 7,627 3,753
Current portion of long-term debt 1,034 903
Net liabilities of discontinued
operations 1,025 988
Other current liabilities 137 3,900
Total current liabilities 56,385 55,569
Long-term liabilities:
Long-term debt 1,204 1,112
Net liabilities of discontinued
operations 3,233 3,484
Other long-term liabilities 3,816 3,497
Total long-term liabilities 8,253 8,093
Total liabilities 64,638 63,662
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par value; authorized
50,000,000 shares; issued and
outstanding 14,309,617 shares at
December 31 and 14,271,545 shares at
June 30 14,310 14,272
Capital in excess of par value 63,985 58,246
Retained earnings 89,210 62,596
Foreign currency translation
adjustments 4,326 5,515
Total shareholders' equity 171,831 140,629
$ 236,469 $ 204,291
See accompanying notes.
<PAGE>
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1993 and 1992
(Unaudited)
(Dollars in thousands)
1993 1992
Cash flows from operating activities:
Net income $ 26,614 $ 12,971
Noncash items included therein:
Cumulative effect of accounting (10,115) -
change
Depreciation and amortization 4,588 4,338
Deferred income tax provision 1,926 203
Provisions for inventory
obsolescence and doubtful
accounts 518 461
Loss on disposition of property,
plant and equipment 91 38
Currency transaction losses 569 2,140
Changes in assets and liabilities:
Increase in accounts receivable (7,519) (6,446)
Increase in inventories (5,388) (5,851)
Decrease in other current assets 279 569
Increase in other assets (403) (227)
Increase in accounts payable and
accruals 7,241 3,389
Increase (decrease) in current and
deferred income taxes payable, net 2,316 (3,486)
Decrease in net liabilities of
discontinued operations (214) (266)
Other, net 245 1,978
Net cash provided by operating
activities 20,748 9,811
Cash flows from investing activities:
Additions to property, plant and
equipment (7,579) (5,486)
Proceeds from the sale of property,
plant and equipment 214 46
Net cash used in investing
activities (7,365) (5,440)
Cash flows from financing activities:
Bank loans 906 2,644
Debt retirement (5,668) (624)
Proceeds from the sale of common
stock 598 4,888
Repurchase of common stock (1,100) -
Net cash (used in) provided by
financing activities (5,264) 6,908
Effect of exchange rate changes on
cash 8 (87)
Increase in cash and cash equivalents 8,127 11,192
Cash and cash equivalents:
Beginning of period 38,406 13,146
End of period $ 46,533 $ 24,338
See accompanying notes.
<PAGE>
CORDIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"),
Accounting for Income Taxes. The cumulative effect on prior
periods of this accounting change of $10.1 million, or $.69
per share, is reported as a one time benefit in the
Consolidated Statement of Operations for the six months
ended December 31, 1993. 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 December 31,
1993 due to the income tax benefits derived from the
exercise of non-qualified stock options and disqualifying
dispositions of incentive stock options.
SFAS No. 109 is an asset and liability approach that
requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected
future events other than enactments of changes in the tax
law or rates. Previously, the Company used the SFAS No. 96
asset and liability approach that gave no recognition to
future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
The tax effect of the significant temporary differences
which comprised the deferred tax assets and liabilities at
July 1, 1993 was as follows (in thousands):
Assets:
Discontinued operations $ 5,214
Intercompany profit adjustments in
inventories and other assets 3,152
Foreign, general business and AMT
tax credits 4,861
Other accrued expenses 3,561
Net operating loss carryforwards 3,351
Asset valuation reserves 1,870
Depreciation 1,322
Employee benefits 1,099
Other 60
24,490
Valuation allowance (3,338)
Total deferred tax assets 21,152
Liabilities:
Employee benefit plans (594)
Other (248)
Total deferred tax liabilities (842)
Net Deferred Tax Asset $20,310
<PAGE>
The valuation allowance relates primarily to net operating
loss carryforwards of the Company's French subsidiary. As
of June 30, 1993 the French subsidiary had a net operating
loss carryforward of approximately $9,200,000.
Due to the adoption of SFAS No. 109, the Company's effective
income tax rate for its year ending June 30, 1994 will
approximate the statutory rates of the countries in which it
operates. For the three and six months ended December 31,
1993, the Company's effective income tax rates were 39% and
38%, respectively. Included in the provision for income
taxes in the Consolidated Statement of Operations for the
six months ended December 31, 1993 is a one time benefit
related to the Company increasing its net deferred tax asset
by approximately $400,000, or $0.03 per share, as a result
of legislation enacted in August 1993 increasing the U.S.
corporate tax rate from 34% to 35%.
As permitted under SFAS No. 109, prior years' financial
statements have not been restated. For the three and six
month periods ended December 31, 1992, the provision for
income taxes was based on the U.S. statutory rate of 34%,
adjusted for foreign tax rate differentials, and the tax
benefit of the utilization of tax credits of $1,300,000 and
$2,500,000, respectively.
2) Primary earnings per share of common stock have been
determined on the basis of the average number of shares of
common stock and common stock equivalents outstanding during
the respective periods. The exercise of outstanding
options, computed under the treasury stock method based upon
average stock prices during the period, has been included in
the computation when dilutive. The computation of fully
diluted earnings per share results in no material dilution.
3) During fiscal 1987, the Company initiated a plan to dispose
of all businesses other than its angiographic and
neuroscience product lines. This plan included the disposal
of the worldwide cardiac pacing operations, of which the
Administrative and Technical Center ("ATC") in Miami,
Florida was a principal asset. ATC is held under a
capitalized lease that expires in December 2005. In
September 1991, the Company executed an agreement to
sublease ATC for a term equal to the remaining term of the
capital lease. The sublease gives the sublessee
cancellation options at the end of the fifth and tenth
years, and an option to extend the lease for five years or
to purchase the facility at December 31, 2005.
<PAGE>
The assets and liabilities related to ATC have been
classified in the balance sheets as net liabilities of
discontinued operations, and are reflected below in
thousands:
December 31, June 30,
1993 1993
Net property, plant and equipment $ 18,460 $ 19,467
Other assets 1,330 1,353
Liabilities (17,013) (17,380)
Reserve for future costs (7,035) (7,912)
(4,258) (4,472)
Amount included in current
liabilities 1,025 988
Net liabilities - non-current $ (3,233) $ (3,484)
The reserve for future costs relates principally to the
discounted shortfall in rental income from the sublease
compared to the Company's underlying payments and other
costs over the full term of the capitalized lease.
4) In April 1993, the Company's Board of Directors authorized
the repurchase of up to 500,000 shares of the Company's
outstanding common stock. Repurchases will be made from
time to time in the open market or private transactions,
including block trades, with the number of shares actually
to be purchased and the price the Company will pay dependent
upon market conditions. Repurchased shares will be made
available for use in employee benefit and incentive plans.
The Company repurchased 37,000 shares of its common stock with
a value of $1.1 million during the first quarter ended
September 30, 1993.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
During the six months ended December 31, 1993, operations
generated cash of approximately $20.7 million compared to $9.8
million in the same period last year. The $10.9 million increase
was principally caused by increased cash collections on higher
sales, offset to a certain extent by increased cash payments for
incremental operating expenses. Net cash used in investing
activities, principally additions to property, plant and
equipment, increased to $7.4 million from $5.4 million a year
ago. Higher net retirement of debt, principally short-term
borrowings in Europe, and lower proceeds from the sale of stock
options caused cash of $5.3 million to be used in financing
activities for the six months ended December 31, 1993 compared to
a net increase in cash of $6.9 million in the year-earlier
period. Between June 30 and December 31, the current ratio
increased to 2.9 from 2.6 and the long-term debt to equity ratio
remained constant at approximately zero.
<PAGE>
The Company has a $25 million line of credit and a $2 million
letter of credit facility with a U.S. bank. No borrowings were
outstanding under the agreement either at December 31, 1993 or
June 30, 1993. In addition, the Company continues its policy of
borrowing funds in Europe to provide financing of local
receivables and to partially hedge its foreign currency
positions. At December 31, 1993 such loans totaled $4.1 million
compared to $9.1 million at June 30, 1993.
Management anticipates that cash generated from operations during
the remainder of the fiscal year and cash on hand, combined, if
necessary, with the utilization of credit lines in the U.S. and
Europe, will be sufficient to meet the Company's current
operating requirements, and to cover the shortfall in rental
income from the sublease of ATC compared to the underlying lease
payments over the lease term. On a long-term basis, management
will continue to address the Company's liquidity requirements and
implement any necessary financing strategies.
Net Sales
For the three and six months ended December 31, 1993, net sales
were $75.4 million and $144.5 million, respectively, up $13.4
million (22%) and $20.1 million (16%) from the same periods last
year. The increases in sales for both the three and six month
periods were principally due to increased sales volumes of the
Company's interventional angiographic products. Foreign sales,
which also benefited from the increased interventional
angiography sales volumes, increased by $7.9 million (22%) and
$11.6 million (16%), respectively, and accounted for 57% of total
sales for all periods presented. Had currency exchange rates
remained constant throughout the periods, the increases in
foreign sales would have been 34% and 33%, respectively.
Sales of angiographic products were $71.6 million and $136.9
million, respectively, for the three and six months ended
December 31, 1993, which represented increases over the prior
year of $14.6 million (26%) and $21.4 million (19%),
respectively. Sales of neuroscience products decreased $1.2
million (23%) and $1.4 million (15%) in the respective periods,
mainly due to a large order from Eastern Europe in the prior year
which did not recur in this period.
Operating Costs and Expenses
Cost of goods sold expressed as a percent of sales was 40% in
each of the three and six months ended December 31, 1993
respectively, compared to 38% of sales in each of the
corresponding periods of the prior fiscal year. The two
percentage point decrease in the gross profit margin in each of
the current periods was principally due to higher royalty
and license fee expenses. In the three months ended December 31,
1993 royalty and license fee expenses were 4% of sales compared
to 1% a year ago due to increased royalty expenses on
significantly higher sales worldwide of PTCA balloon catheters
and a $1.6 million charge with respect to a license agreement
with C.R. Bard for the license of PTCA balloon catheter technology,
of which $1.4 million relates to the period from May 1991 to
<PAGE>
September 1993 (See Part II. Other Information, Item 1. Legal
Proceedings). For the six months ended December 31, 1993 royalty
and license fee expenses were 3% compared to 1%, and increased
for the same reasons outlined above. Offsetting these increases
to a certain extent were lower product costs due to a more
favorable sales mix of products.
Research and development expenses for the three and six months
ended December 31, 1993 were $5.6 million and $11.1 million,
respectively, increases of $0.5 million (9%) and $1.1 million
(11%) from the prior year. The increases in research and
development expenses were principally due to increased spending
in the U.S. on the development of interventional angiography and
other products. Expressed as a percent of sales, research and
development expenses were 7% and 8% in the respective three and
six month periods ended December 31, 1993, compared to 8% for
each of the corresponding periods in the prior year.
Selling, general and administrative expenses for the three and
six months ended December 31, 1993 were $26.1 million and $49.9
million respectively, up $3.3 million (14%) and $4.9 million
(11%) from the corresponding periods of last year. The increases
in selling, general and administrative expenses were principally
due to higher legal expenses, increased sales commissions and
promotional expenses due to higher sales, and higher salaries and
travel expenses due to headcount increases. However, favorable
currency exchange rate effects in Europe partially offset these
factors. If currency rates had remained constant throughout the
periods, selling, general and administrative expenses would
have increased 20% and 19%, respectively, over last year.
Expressed as a percent of sales, selling, general and administr-
ative expenses were 35% in each of the current periods, compared
to 37% and 36% in the same periods last year.
Interest Expense, Net and Other
Interest and other income, net increased by $1.6 million and $4.5
million, respectively, in the three and six months ended December
31, 1993. The increases were principally due to lower currency
transaction losses related to inventory purchases, lower reserves
for uncollectible investments and other issues which did not
recur in fiscal 1994.
Income Taxes
The consolidated effective income tax rates for the three and six
months ended December 31, 1993 were 39% and 38%, respectively,
compared to 27% and 29% in the corresponding prior year periods.
The increases in the effective rates were caused by the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" at the beginning of the current
fiscal year (see Note 1 of Notes to Consolidated Financial
Statements).
<PAGE>
Cumulative Effect of Accounting Change
As stated in the preceding paragraph, and as more fully explained
in Note 1 of Notes to Consolidated Financial Statements, the
Company adopted SFAS No. 109 on July 1, 1993. The effect of the
adoption was reflected as a one time benefit of $10.1 million
($0.69 per share) in the Consolidated Statement of Operations
under the caption "Cumulative Effect of Accounting Change" in the
first quarter of fiscal 1994.
Net Income
Income before the cumulative effect of an accounting change for
the three and six months ended December 31, 1993 was $8.6 million
($0.58 per share) and $16.5 million ($1.13 per share),
respectively, compared to $6.9 million ($0.47 per share) and
$13.0 million ($0.89 per share) in the prior year periods. Net
income for the three and six months ended December 31, 1993 was
$8.6 million ($0.58 per share) and $26.6 million ($1.82 per
share), respectively, compared to $6.9 million ($0.47 per share)
and $13.0 million ($0.89 per share) in the prior year periods.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 Eastern 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.
<PAGE>
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, TNC agreed to assume the primary
obligation to defend and indemnify the Company for the pacemaker
product liability litigation. 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.
Only in the event that the class action plaintiffs are successful
in their claims and 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 TNC'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,
communication with outside counsel and internal analyses of the
cases, the Company believes that such an outcome is unlikely.
In November 1993, Final Judgment was entered in favor of C. R.
Bard ("Bard"). The Company elected not to litigate the matter
further and paid the attorneys' fees awarded to Bard and the
royalties due pursuant to the original settlement agreement. In
addition, the Company intends to pay the sum of $3,000,000 as a
license fee pursuant to the provisions of the settlement agreement.
The Company has accrued all royalties due to Bard pursuant to
the original settlement agreement as of December 31, 1993. In
addition, the Company has expensed $1.6 million of the $3.0
million license fee utilizing a five year amortization period
from the agreement date of May 1991.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 11 Computation of primary earnings per share.
b) No reports were filed on Form 8-K during the three months
ended December 31, 1993.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CORDIS CORPORATION
By: ALFRED J. NOVAK
Alfred J. Novak, Vice President,
Treasurer and Chief Financial Officer
(principal financial officer)
Date: January 17, 1994
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months and Six Months Ended December 31, 1993 and 1992
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Six Months
1993 1992 1993 1992
Income before
cumulative effect of
accounting change $ 8,591 $ 6,917 $ 16,499 $12,971
Cumulative effect of
accounting change - - 10,115 -
Net income $ 8,591 $ 6,917 $ 26,614 $12,971
Common shares (000):
Weighted average common
shares outstanding 14,298 14,280 14,292 14,199
Equivalent shares from
outstanding options
(1) 405 319 331 309
Total 14,703 14,599 14,623 14,508
Earnings per share:
Income before
cumulative effect of
accounting change $ .58 $ .47 $ 1.13 $ .89
Cumulative effect of
accounting change - - .69 -
Net income $ .58 $ .47 $ 1.82 $ .89
(1) Computed using the treasury stock method based on the
average price during the periods.
NOTE: The computation of earnings per share on the fully
diluted basis is the same as that set forth above.
