UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 14,404,738 shares of common stock
(par value $1.00 per share) as of April 22, 1994.
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CORDIS CORPORATION
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1994
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 6. Exhibits and Reports on Form 8-K............. 10
Signature .................................................. 10
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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.
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CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended March 31, 1994 and 1993
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Nine Months
1994 1993 1994 1993
Net Sales $85,043 $ 64,219 $229,589 $188,705
Operating costs and
expenses:
Cost of goods sold 33,474 26,588 91,239 74,260
Research and
development 6,325 4,596 17,465 14,616
Selling, general and
administrative 29,797 21,935 79,700 66,891
Total operating costs
and expenses 69,596 53,119 188,404 155,767
Operating profit 15,447 11,100 41,185 32,938
Other (income) deductions:
Interest expense, net
and other (548) 1,171 (1,524) 4,698
Income before income
taxes and cumulative
effect of accounting
change 15,995 9,929 42,709 28,240
Provision for income
taxes 6,059 2,186 16,274 7,526
Income before
cumulative effect of
accounting change 9,936 7,743 26,435 20,714
Cumulative effect of
accounting change - - 10,115 -
Net income $ 9,936 $ 7,743 $ 36,550 $ 20,714
Earnings per share:
Income before
cumulative effect of
accounting change $ .67 $ .53 $ 1.80 $ 1.42
Cumulative effect of
accounting change - - .69 -
Net income $ .67 $ .53 $ 2.49 $ 1.42
See accompanying notes.
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CORDIS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1994 and June 30, 1993
(Dollars in thousands)
March 31 June 30
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 41,741 $ 38,406
Marketable securities, at cost 6,969 -
Accounts receivable, net 71,929 58,369
Inventories:
Finished goods 22,365 18,506
Work-in-process 11,096 9,213
Raw materials and supplies 9,266 7,002
42,727 34,721
Deferred income taxes 9,893 3,564
Other current assets 4,981 7,583
Total current assets 178,240 142,643
Property, plant and equipment, net of
accumulated depreciation of $59,785 at
March 31 and $53,801 at June 30 63,906 57,097
Deferred income taxes 8,410 663
Other assets 6,793 3,888
$ 257,349 $ 204,291
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 5,459 $ 9,092
Accounts payable 9,216 5,846
Accrued expenses 39,657 31,087
Income taxes payable 7,793 3,753
Current portion of long-term debt 820 903
Net liabilities of discontinued operations 867 988
Other current liabilities 228 3,900
Total current liabilities 64,040 55,569
Long-term liabilities:
Long-term debt 1,476 1,112
Net liabilities of discontinued operations 3,069 3,484
Other long-term liabilities 3,964 3,497
Total long-term liabilities 8,509 8,093
Total liabilities 72,549 63,662
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par value; authorized
50,000,000 shares; issued and
outstanding 14,402,395 shares at
March 31 and 14,271,545 shares at
June 30 14,402 14,272
Capital in excess of par value 65,933 58,246
Retained earnings 99,146 62,596
Foreign currency translation adjustments 5,319 5,515
Total shareholders' equity 184,800 140,629
$ 257,349 $ 204,291
See accompanying notes.
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CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1994 and 1993
(Unaudited)
(Dollars in thousands)
1994 1993
Cash flows from operating activities:
Net income $ 36,550 $ 20,714
Noncash items included therein:
Cumulative effect of accounting change (10,115) -
Depreciation and amortization 6,958 6,548
Deferred income tax provision 2,894 130
Provisions for inventory obsolescence
and doubtful accounts 1,065 1,721
Loss on disposition of property, plant
and equipment 64 77
Currency transaction losses 906 2,310
Changes in assets and liabilities:
Increase in accounts receivable (15,263) (9,462)
Increase in inventories (8,636) (6,344)
Increase in other current assets (1,038) (618)
Increase in other assets (1,373) (360)
Increase in accounts payable and accruals 13,538 8,535
Increase (decrease) in current and
deferred income taxes payable, net 2,820 (3,492)
Decrease in net liabilities of
discontinued operations (536) (394)
Other, net 363 2,441
Net cash provided by operating activities 28,197 21,806
Cash flows from investing activities:
Additions to property, plant and equipment (13,682) (8,711)
Purchases of marketable securities and
other investments (8,969) -
Proceeds from the sale of property, plant
and equipment 244 46
Net cash used in investing activities (22,407) (8,665)
Cash flows from financing activities:
Bank loans 1,320 939
Debt retirement (4,628) (899)
Proceeds from the sale of common stock 1,931 6,272
Repurchase of common stock (1,100) -
Net cash (used in) provided by financing
activities (2,477) 6,312
Effect of exchange rate changes on cash 22 (230)
Increase in cash and cash equivalents 3,335 19,223
Cash and cash equivalents:
Beginning of period 38,406 13,146
End of period $ 41,741 $ 32,369
See accompanying notes.
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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 nine months ended
March 31, 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 March 31, 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 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. The Company's effective income tax rate was 38% in
each of the three and nine month periods ended March 31, 1994.
Included in the provision for income taxes in the Consolidated
Statement of Operations for the nine months ended March 31,
1994 is a one time benefit related to the Company increasing
its net deferred tax asset by approximately $400,000, or $0.03
per share, as a result of legislation enacted in August 1993
increasing the U.S. corporate tax rate from 34% to 35%.
As permitted under SFAS No. 109, prior years' financial
statements have not been restated. For the three and nine
month periods ended March 31, 1993, 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 $1,400,000 and $3,900,000,
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:
March 31, June 30,
1994 1993
Net property, plant and equipment $ 18,074 $ 19,467
Other assets 1,319 1,353
Liabilities (16,823) (17,380)
Reserve for future costs (6,506) (7,912)
(3,936) (4,472)
Amount included in current
liabilities 867 988
Net liabilities - non-current $ (3,069) $ (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 nine months ended March 31, 1994, operations generated
cash of approximately $28.2 million compared to $21.8 million in
the same period last year. The $6.4 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 increased to $22.4 million from $8.7 million a year ago;
in addition to a $5 million increase in additions to property,
plant and equipment, $9.0 million was spent on purchases of
marketable securities and other investments of which $7.0 million
was short-term in nature, and $2.0 million long-term, included in
other assets. Higher net retirement of debt, principally short-
term borrowings in Europe, and lower proceeds from the sale of
stock options caused cash of $2.5 million to be used in financing
activities for the nine months ended March 31, 1994 compared to a
net increase in cash of $6.3 million in the year-earlier period.
<PAGE>
Between June 30 and March 31, the current ratio increased to 2.8
from 2.6 and the long-term debt to equity ratio remained constant
at approximately zero. Working capital was $114.2 million at March
31, 1994; the $27.1 million increase from June 30, 1993 was
principally due to increased cash and accounts receivable balances
associated with the increase in sales and higher inventory due to
production levels increasing to meet the demand for the Company's
products.
The Company has a $25 million line of credit and a $2 million
letter of credit facility with a U.S. bank. No borrowings were
outstanding under the agreement either at March 31, 1994 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 March
31, 1994 such loans totaled $5.5 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 and marketable securities
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 necessary financing strategies.
Net Sales
For the three and nine months ended March 31, 1994, net sales were
$85.0 million and $229.6 million, respectively, up $20.8 million
(32%) and $40.9 million (22%) from the same periods last year. The
increases in sales for both the three and nine month periods were
principally due to increased sales volumes of the Company's
interventional angiographic products. Foreign sales, which also
benefited from the increased interventional angiography sales
volumes, increased by $13.7 million (37%) and $25.3 million (24%),
respectively, and accounted for 59% of total sales for the current
quarter. Had currency exchange rates remained constant throughout
the periods, the increases in foreign sales would have been 46% and
38%, respectively.
Sales of angiographic products were $80.6 million and $217.5
million, respectively, for the three and nine months ended March
31, 1994, which represented increases over the prior year of $20.4
million (34%) and $41.8 million (24%), respectively. Sales of
neuroscience products increased $0.4 million (11%) in the current
quarter and decreased $0.9 million (7%) in the nine month period.
Operating Costs and Expenses
Cost of goods sold expressed as a percent of sales was 39% and 40%,
respectively, in the three and nine months ended March 31, 1994
compared to 41% and 39% of sales in the corresponding periods of
the prior fiscal year. The increase in profitability in the
current quarter was principally due to lower unit angiographic
<PAGE>
product costs in the current fiscal year as a result of increased
production volumes worldwide and the beneficial effect upon margins
of increased worldwide angioplasty sales which carry higher than
average profit margins. Offsetting these favorable effects to a
certain extent were higher royalty expenses in fiscal year 1994 due
to increased sales of PTCA balloon catheters; such sales more than
tripled in the three months ended March 31, 1994, and accounted for
24% of worldwide angiographic products sales compared to 10% a year
ago. The decrease in profitability for the nine-month period was
principally due to 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 $1.3 million related to the period from May
1991 to June 1993.
Research and development expenses for the three and nine months
ended March 31, 1994 were $6.3 million and $17.5 million,
respectively, increases of $1.7 million (38%) and $2.8 million
(19%) 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
nine month periods ended March 31 for both fiscal years.
Selling, general and administrative expenses for the three and nine
months ended March 31, 1994 were $29.8 million and $79.7 million
respectively, up $7.9 million (36%) and $12.8 million (19%) from
the corresponding periods of last year. The increases in selling,
general and administrative expenses were principally due to higher
legal expenses, higher reserves for uncollectible accounts
receivable, and increased employee related costs, promotional and
travel expenses due to higher sales and the expansion of the U.S.
and European marketing organizations. 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
41% and 26%, respectively, over last year. Expressed as a percent
of sales, selling, general and administrative expenses were 35% in
each of the current periods, compared to 34% and 35% for the three
and nine month periods last year.
Interest Expense, Net and Other
Interest and other income, net increased by $1.7 million and $6.2
million, respectively, in the three and nine months ended March 31,
1994. The increases were principally due to lower reserves for
uncollectible investments and other issues which did not recur in
fiscal 1994, and lower currency transaction losses related to
inventory purchases in the nine-month period.
Income Taxes
The consolidated effective income tax rate was 38% in each of the
three and nine months ended March 31, 1994, compared to 22% and 27%
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
<PAGE>
Income Taxes" at the beginning of the current fiscal year (see Note
1 of Notes to Consolidated Financial Statements).
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 nine months ended March 31, 1994 was $9.9 million
($0.67 per share) and $26.4 million ($1.80 per share),
respectively, compared to $7.7 million ($0.53 per share) and $20.7
million ($1.42 per share) in the prior year periods. Net income
for the three and nine months ended March 31, 1994 was $9.9 million
($0.67 per share) and $36.6 million ($2.49 per share),
respectively, compared to $7.7 million ($0.53 per share) and $20.7
million ($1.42 per share) in the prior year periods.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 11 Computation of primary earnings per share.
b) A report on Form 8-K was filed on January 20, 1994 as to: Item
5. The signing of a definitive agreement to acquire Webster
Laboratories, Inc. ("Webster") in a stock-for-stock
transaction. The transaction is structured as a tax-free
reorganization of Webster, and is expected to be accounted for
as a pooling of interests.
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, Vice President,
Treasurer and Chief Financial Officer
(principal financial officer)
Date: April 25, 1994
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months and Nine Months Ended March 31, 1994 and 1993
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Nine Months
1994 1993 1994 1993
Income before
cumulative effect of
accounting change $ 9,936 $ 7,743 $ 26,435 $20,714
Cumulative effect of
accounting change - - 10,115 -
Net income $ 9,936 $ 7,743 $ 36,550 $20,714
Common shares (000):
Weighted average common
shares outstanding 14,367 14,426 14,317 14,274
Equivalent shares from
outstanding options
(1) 431 247 364 289
Total 14,798 14,673 14,681 14,563
Earnings per share:
Income before
cumulative effect of
accounting change $ .67 $ .53 $ 1.80 $ 1.42
Cumulative effect of
accounting change - - .69 -
Net income $ .67 $ .53 $ 2.49 $ 1.42
(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.
