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 September 30, 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 16,093,537 shares of common stock
(par value $1.00 per share) as of October 27, 1994.
CORDIS CORPORATION
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 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 .. 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................. 7-8
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................ 9
Item 4. Submission of Matters to a Vote
of Security Holders ....................... 9-10
Item 6. Exhibits and Reports on Form 8-K ............ 10
Signature .................................................. 10
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.
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1994 and 1993
(Unaudited)
(Dollars in thousands except per share amounts)
1994 1993
Net sales $ 98,111 $ 73,147
Operating costs and expenses:
Cost of goods sold 38,046 28,372
Research and development 7,870 5,955
Selling, general and administrative 33,073 24,446
Total operating costs and expenses 78,989 58,773
Operating profit 19,122 14,374
Other (income)deductions:
Interest expense, net and other (583) 314
Income before income taxes and
cumulative effect of accounting
change 19,705 14,060
Provision for income taxes 8,072 5,337
Income before cumulative effect
of accounting change 11,633 8,723
Cumulative effect of accounting change - 10,115
Net income $ 11,633 $ 18,838
========= =========
Earnings per share:
Income before cumulative effect of
accounting change $ .70 $ .53
Cumulative effect of accounting change - .62
Net income $ .70 $ 1.15
========= =========
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and June 30, 1994
(Dollars in thousands)
September 30 June 30
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 51,054 $ 48,531
Short-term investments, at lower of
cost or market 7,025 7,055
Accounts receivable, net 84,691 82,502
Inventories:
Finished goods 29,326 25,770
Work-in-process 13,639 12,483
Raw materials and supplies 9,884 9,913
52,849 48,166
Deferred income taxes 11,201 10,350
Other current assets 5,593 5,942
Total current assets 212,413 202,546
Property, plant and equipment, net of
accumulated depreciation of $68,229
at September 30 and $64,509 at
June 30 74,989 71,247
Deferred income taxes 5,324 6,844
Other assets 7,302 7,490
$ 300,028 $ 288,127
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,428 $ 9,057
Accounts payable 10,651 10,916
Accrued expenses 39,726 50,329
Income taxes payable 10,084 5,245
Current portion of long-term debt 575 613
Total current liabilities 69,464 76,160
Long-term liabilities:
Long-term debt 1,842 1,894
Other long-term liabilities 10,215 7,234
Total long-term liabilities 12,057 9,128
Total liabilities 81,521 85,288
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par value; authorized
50,000,000 shares; issued and outstand-
ing 16,077,261 shares at September 30
and 16,001,206 shares at June 30 16,077 16,001
Capital in excess of par value 64,425 62,016
Retained earnings 127,291 115,658
Foreign currency translation adjustments 10,714 9,164
Total shareholders' equity 218,507 202,839
$ 300,028 $ 288,127
========== ==========
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1994 and 1993
(Unaudited)
(Dollars in thousands)
1994 1993
Cash flows from operating activities:
Net income $ 11,633 $ 18,838
Noncash items included therein:
Cumulative effect of accounting change - (10,115)
Depreciation and amortization 3,050 2,376
Deferred income tax provision 1,567 1,126
Provisions for inventory obsolescence,
doubtful accounts and other 257 903
(Gain) loss on disposition of property,
plant and equipment (23) 67
Currency transaction losses 94 757
Changes in assets and liabilities:
Increase in accounts receivable (1,063) (2,485)
Increase in inventories (3,757) (2,034)
Decrease (increase)in other current
assets 497 (634)
Decrease in other assets 151 294
(Decrease)increase in accounts payable
and accruals (10,041) 2,207
Increase in current and deferred income
taxes payable, net 4,645 2,446
Other, net 1,642 287
Net cash provided by operating activities 8,652 14,033
Cash flows from investing activities:
Additions to property, plant and equipment (5,613) (3,220)
Proceeds from the sale of property, plant
and equipment 25 31
Net cash used in investing activities (5,588) (3,189)
Cash flows from financing activities:
Debt retirement (1,000) (4,235)
Proceeds from the sale of common stock 275 241
Repurchases of common stock - (1,100)
Net cash used in financing activities (725) (5,094)
Effect of exchange rate changes on cash 184 24
Increase in cash and cash equivalents 2,523 5,774
Cash and cash equivalents:
Beginning of period 48,531 42,042
End of period $ 51,054 $ 47,816
========= =========
See accompanying notes.
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 $.62
per share, was reported as a one time benefit in the
Consolidated Statement of Operations for the three months
ended September 30, 1993.
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.
Included in the provision for income taxes in the Consolidated
Statement of Operations for the three months ended September
30, 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%.
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.
In September 1994, the sublessee's parent entered into an
agreement to sell the sublessee. The Company has been
verbally notified that the sublessee will either exercise its
cancellation option on December 31, 1996 or assign the
sublease to a third party acceptable to the Company. If the
sublessee exercises the cancellation option, it will be
required to refund $3.8 million in leasehold improvement
allowances. The Company believes that such repayment,
combined with the current reserve for future carrying costs,
will be sufficient to cover the carrying costs of the building
until a replacement tenant can be found.
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:
September 30, June 30,
1994 1994
Net property, plant and equipment $ 17,419 $ 17,805
Other assets 1,294 1,307
Liabilities (16,428) (16,628)
Reserve for future costs (8,630) (6,316)
(6,345) (3,832)
Amount included in current
liabilities 815 842
Net liabilities - non-current $ (5,530) $ (2,990)
============ ===========
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. In anticipation
of the potential cancellation of the sublease mentioned above,
the Company increased the reserve balance in the first quarter
of fiscal 1995.
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. During the three months ended
September 30, 1993, the Company entered into commitments to
repurchase 37,000 shares of its common stock with a value of
$1.1 million. This repurchase program was completed in June
1994. In August 1994, 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. No shares
have been repurchased to date under the August 1994 program.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
During the quarter ended September 30, 1994, operations generated
cash of approximately $8.7 million. The $5.4 million decrease from
the first quarter of fiscal 1994 was principally due to reductions
in accounts payable and accrued expenses balances, offset by higher
income. Cash used in investing activities was $5.6 million, $2.4
million higher than last year due to an increase in capital
expenditures. Cash used in financing activities was $0.7 million,
a $4.4 million decrease from a year ago due to lower debt
retirement and nonrecurring repurchases of common stock.
Working capital was $142.9 million at September 30, 1994, a $16.6
million increase from June 30, 1994. The increase was principally
due to cash generated from operations, lower accounts payable and
accrued expenses and higher inventory levels. Between June 30 and
September 30, the current ratio increased to 3.1 from 2.7.
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 September 30, 1994 or
June 30, 1994. 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
September 30, 1994 such loans totaled $8.4 million compared to $9.1
million at June 30, 1994.
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 and the effects of the potential 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 any necessary financing strategies.
Net Sales
For the three months ended September 30, 1994, net sales were
$98.1 million, $25.0 million (34%) ahead of the corresponding prior
period due to increased sales volume. Had currency exchange rates
remained constant throughout the periods, worldwide net sales would
have increased by 30%. Foreign sales increased $19.1 million (47%)
and accounted for 61% of total sales. At constant currency
exchange rates, the increase in foreign sales would have been 41%.
Angiography sales for the quarter totaled $94.2 million, up $24.8
million (36%). Neuroscience product sales were $3.9 million, up
$0.1 million (3%) from last year. At constant currency exchange
rates angiography and neuroscience sales would have increased by
32% and 1%, respectively.
Operating Costs and Expenses
Cost of goods sold was 39% of net sales in both three month periods
ended September 30, 1994 and 1993. The gross profit margin
remained the same for the current quarter as the effect of higher
sales of higher-margin angioplasty products was offset by higher
royalty expenses on increased sales of PTCA balloon catheters.
Research and development expenses were $7.9 million for the three
months, up $1.9 million (32%) from the first quarter a year ago.
Most of the increase was attributable to higher spending on
neuroendoscopy and laparoscopy products in the U.S. and diagnostic
angiography products in Europe. Research and development expenses
were 8% of net sales in both quarters.
Selling, general and administrative ("SG&A") expenses were $33.1
million, up $8.6 million (35%), from $24.4 million in the prior
year. The increase in SG&A expenses was principally due to higher
sales commissions and promotional expenses due to the increased
sales levels compared to last year, higher salaries and employee
benefits due to headcount increases in sales and marketing, and
higher legal expenses and employee incentive expenses. Expressed
as a percent of net sales, SG&A expenses were 34% and 33%
respectively.
Interest Expense, Net and Other
Interest expense, net and other increased by $0.9 million due
principally to a non-recurring reserve for a litigation settlement
in the prior year quarter, higher interest income and lower
currency transaction losses.
Income Taxes
The consolidated effective income tax rate for the three months
ended September 30, 1994 was 41% compared to 38% in the year-
earlier quarter. The increase in the effective income tax rate was
primarily caused by a one-time benefit of approximately $400,000
for the three months ended September 30, 1993 related to the
Company increasing its deferred tax asset as a result of
legislation enacted in August 1993 increasing the U.S. corporate
tax rate from 34% to 35%.
Net Income
Income before the cumulative effect of an accounting change was
$11.6 million ($0.70 per share) for the three months ended
September 30, 1994 compared to $8.7 million ($0.53 per share) a
year ago. Net income was $11.6 million ($0.70 per share) compared
to $18.8 million ($1.15 per share).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the case by a former employee alleging entitlement to lump sum
distributions under the Company's Retirement Plan, the Eleventh
Circuit Court of Appeals has affirmed the decision of the District
Court granting the Company's Motion to Dismiss.
The Company has instituted several patent infringement actions
against certain Schneider companies in Great Britain, Germany,
Italy, France, and The Netherlands alleging that certain Schneider
products infringe the Company's patents relating to its nylon
balloon technology.
A Settlement Conference was held in the pacemaker product liability
class action on September 29, 1994 in Dayton, Ohio. To facilitate
settlement discussions, the judge ruled that the litigation would
be stayed pending the conclusion of settlement negotiations.
Subsequent to the Company's claim upon Bard that a license of
technology to Schneider required a reduction of royalties due from
the Company to Bard pursuant to the "more reasonable terms" clause
of the settlement agreement, Bard filed a Motion in the U.S.
District Court in Boston, Massachusetts to have the matter reviewed
and ruled upon by the Court which heard the initial case. The
Company and Bard briefed the issues and the matter was set for
hearing on October 3, 1994. Both sides argued the Motion and the
Judge took the matter under advisement without indicating when a
ruling would be forthcoming. The Company continues to accrue but
withhold payment of the royalties until such time as a final
determination of the rights of the Company and Bard are determined
by the U.S. District Court.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Shareholders of the Company was held on
October 27, 1994. There were 12,885,564 shares of common stock
represented at the meeting in person or by proxy. The following
business was transacted:
Proxies for the meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934. There were no
solicitations in opposition to management's nominees for Directors
as listed in the Proxy Statement and all such nominees were
elected.
The Board of Directors' selection of Deloitte & Touche to be the
Company's independent auditors for the fiscal year ending June 30,
1995, was ratified by 12,826,055 votes. There were 51,141 votes
against with 8,368 abstentions.
The motion to increase the number of shares reserved for grants
under the Cordis Corporation Non-Qualified Stock Option Plan was
approved by 8,273,603 votes. There were 3,678,576 votes against,
with 933,385 abstentions.
The motion to limit the maximum number of additional options to
acquire shares that may be granted in the future to an employee
under the Cordis Corporation Non-Qualified Stock Option Plan was
approved by 11,657,668 votes. There were 287,677 votes against,
with 940,219 abstentions.
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 September 30, 1994.
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
and Chief Financial Officer
(principal financial officer)
Date: October 31, 1994
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months Ended September 30, 1994 and 1993
(Unaudited)
(Dollars in thousands except per share amounts)
1994 1993
Income:
Income before cumulative effect
of accounting change $ 11,633 $ 8,723
Cumulative effect of accounting
change - 10,115
Net income $ 11,633 $ 18,838
======== ========
Common Shares (000):
Weighted average common shares
outstanding 16,029 15,936
Equivalent shares from outstand-
ing options (1) 515 443
Total 16,544 16,379
======== ========
Earnings per share:
Income before cumulative effect
of accounting change $ .70 $ .53
Cumulative effect of accounting
change - .62
Net income $ .70 $ 1.15
======== ========
(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.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CORDIS CORPORATION FOR THE THREE MONTHS ENDED SEPTEMBER
30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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