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, 1995
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)
5200 Blue Lagoon Drive, Suite 200, Miami, Florida 33126
(Address of principal executive offices) (Zip Code)
(305) 824-2900
(Registrant's telephone number, including area code)
14201 N.W. 60th Avenue, Miami Lakes, Florida 33014 (305)824-2000
(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 16,511,553 shares of common stock
(par value $1.00 per share) as of October 20, 1995.
CORDIS CORPORATION
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1995
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 ............................. 6-8
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.............................8
Item 4. Submission of Matters to a Vote
of Security Holders ..........................9
Item 6. Exhibits and Reports on Form 8-K .............10
Signature ...................................................11
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. Certain amounts in prior years have been
reclassified to conform to the 1996 Consolidated
Financial Statement presentation.
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, 1995 and 1994
(Unaudited)
(Dollars in thousands except per share amounts)
1995 1994
Net sales $123,441 $ 98,111
Operating costs and expenses:
Cost of goods sold 48,481 38,046
Research and development 9,827 7,870
Selling, general and administrative 40,774 33,073
Total operating costs and expenses 99,082 78,989
Operating profit 24,359 19,122
Other income:
Interest income, net and other (268) (583)
Income before income taxes 24,627 19,705
Provision for income taxes 9,538 8,072
Net income $ 15,089 $ 11,633
Earnings per share $ .89 $ .70
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and June 30, 1995
(Dollars in thousands)
September 30 June 30
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 92,635 $ 100,558
Accounts receivable, net 106,970 103,835
Inventories:
Finished goods 35,830 36,306
Work-in-process 13,097 12,188
Raw materials and supplies 10,182 10,089
59,109 58,583
Deferred income taxes 6,359 7,133
Other current assets 21,190 17,480
Total current assets 286,263 287,589
Property, plant and equipment, net of
accumulated depreciation of $82,729
at September 30 and $81,076 at June 30 89,565 88,493
Minority investment in Biosense, Inc. 15,500 1,000
Deferred income taxes 9,252 9,628
Other assets 11,703 8,252
$ 412,283 $ 394,962
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,558 $ 9,828
Accounts payable 14,284 14,854
Accrued expenses 61,068 61,724
Income taxes payable 8,254 6,933
Current portion of long-term debt 565 669
Total current liabilities 92,729 94,008
Long-term liabilities:
Long-term debt 1,352 1,484
Other long-term liabilities 16,516 17,625
Total long-term liabilities 17,868 19,109
Total liabilities 110,597 113,117
Commitments and contingencies (Note 2)
Shareholders' equity:
Common stock, $1 par value; authorized
50,000,000 shares; issued and outstand-
ing 16,501,277 shares at September 30
and 16,361,568 shares at June 30 16,501 16,362
Capital in excess of par value 80,931 74,503
Retained earnings 180,955 165,866
Unrealized gain on investment, net of
deferred income taxes of $2,903 at
September 30 and $1,755 at June 30 5,160 2,745
Foreign currency translation adjustments 18,139 22,369
Total shareholders' equity 301,686 281,845
$ 412,283 $ 394,962
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1995 and 1994
(Unaudited)
(Dollars in thousands)
1995 1994
Cash flows from operating activities:
Net income $ 15,089 $ 11,633
Noncash items included therein:
Depreciation and amortization 3,304 3,050
Deferred income tax (benefit) provision (211) 1,567
Provisions for inventory obsolescence,
doubtful accounts and other 768 328
Changes in assets and liabilities:
Increase in accounts receivable (4,626) (1,063)
Increase in inventories (2,179) (3,757)
Increase (decrease) in other current
assets (335) 497
(Increase) decrease in other assets (4,206) 151
Increase (decrease) in accounts payable
and accruals 2,590 (7,734)
Increase in current and deferred income
taxes payable, net 2,817 4,867
(Decrease) increase in other long-term
liabilities (535) 452
Other, net (558) (1,339)
Net cash provided by operating activities 11,918 8,652
Cash flows from investing activities:
Additions to property, plant and equipment (5,732) (5,613)
Purchase of minority investment in
Biosense, Inc. (14,500) -
Proceeds from the sale of property, plant
and equipment 48 25
Net cash used in investing activities (20,184) (5,588)
Cash flows from financing activities:
Debt retirement (1,359) (1,000)
Proceeds from the sale of common stock 2,200 275
Net cash provided by (used in)
financing activities 841 (725)
Effect of exchange rate changes on cash (498) 184
(Decrease) increase in cash and cash
equivalents (7,923) 2,523
Cash and cash equivalents:
Beginning of period 100,558 48,531
End of period $ 92,635 $ 51,054
See accompanying notes.
CORDIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) 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.
2) 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.
In December 1994, the sublessee's parent sold the assets of the
sublessee to an unrelated third party. In June 1995, the
sublessee exercised its option to cancel the sublease effective
November 1995 and will pay a termination penalty of $5.45
million upon vacating the building. The Company believes that
the proceeds from the termination penalty, 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. Accordingly, the Company does not believe
that the cancellation of the sublease will have a material
effect on the future liquidity or financial condition of the
Company.
The assets and liabilities related to ATC are reflected below
in thousands:
September 30, June 30,
1995 1995
Net property, plant and equipment $ 15,875 $ 16,261
Other assets 1,238 1,253
Liabilities (15,577) (15,799)
Reserve for future costs (7,226) (7,410)
(5,690) (5,695)
Amount included in current assets 2,776 2,930
Net liabilities - non-current $ (8,466) $ (8,625)
3) On October 12, 1995, the Company's Board of Directors adopted
a new shareholder rights agreement ("Rights Agreement") under
which a dividend distribution of one Right for each outstanding
share of common stock, $1.00 par value ("Common Stock") of the
Company was declared. The distribution was payable to
shareholders of record as of the close of business October 23,
1995. Each Right, when exercisable, entitles the registered
holder to purchase from the Company one share of Common Stock
at a price of $375 per share (the "Purchase Price"), subject to
adjustment.
Initially, the Rights will be attached to all certificates
representing shares of Common Stock then outstanding, and no
separate certificates evidencing the Rights will be distributed.
The Rights will separate from the Common Stock and a
distribution of Rights Certificates will occur upon the earlier
to occur of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding
shares of Common Stock (the "Stock Acquisition Date") or (ii)
10 business days (or such later date as the Continuing Directors
may determine) following the commencement of a tender offer or
exchange offer the consummation of which would result in the
beneficial ownership by a person of 15% or more of the
outstanding shares of Common Stock (the earlier of such dates
being called the "Distribution Date").
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on October 13, 2005, unless
earlier redeemed or exchanged by the Company. Until a Right is
exercised, the holder thereof will have no rights as a
shareholder of the Company, including, without limitation, the
rights as a shareholder of the Company, including, without
limitation, the right to vote or to receive dividends.
In the event that a Person becomes the beneficial owner of 15%
or more of the then outstanding shares of Common Stock (except
pursuant to an offer for all outstanding shares of Common Stock
which the Outside Directors determine to be fair to and
otherwise in the best interests of the Company and its
shareholders), each holder of a Right will, unless such Rights
have been redeemed or exchanged, have the right to exercise the
Right by purchasing, for an amount equal to the Purchase Price,
Common Stock (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two
times such amount. Notwithstanding any of the foregoing,
following the occurrence of the events set forth in this
paragraph, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by
any Acquiring Person will be null and void. However, Rights are
not exercisable following the occurrence of the events set forth
above until such times as the Rights are no longer redeemable
by the Company as set forth below.
In connection with the adoption of the new Rights Agreement, the
Board of Directors also redeemed the rights issued pursuant to
the Company's September 12, 1986 Rights Agreement. The
redemption price for these rights is $.01 per right, which will
be paid on or about November 3, 1995 to the shareholders of
record at the close of business on October 23, 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
During the quarter ended September 30, 1995, operations generated
cash of approximately $11.9 million. The $3.3 million increase from
the prior year first quarter was principally due to higher net
income and increases in accounts payable and accrued expenses
balances, offset by increases in accounts receivable and other
assets. Cash used in investing activities was $20.2 million, $14.6
million higher than last year due to the purchase of a minority
investment in Biosense, Inc. Cash provided by financing activities
was $0.8 million, a $1.6 million increase from a year ago due to
higher proceeds from the sale of common stock which resulted from
the exercise of stock options.
Working capital was $193.5 million at September 30, 1995, slightly
lower than June 30, 1995 due to the decrease in cash for the quarter
which offset increases in other working capital components. The
current ratio was 3.1 at both June 30 and September 30, 1995.
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, 1995 or June
30, 1995. 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, 1995 such loans totaled $8.6 million compared to $9.8 million
at June 30, 1995.
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 the lease payments and other obligations of ATC
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 months ended September 30, 1995, net sales were
$123.4 million, $25.3 million (26%) higher than the corresponding
prior period due to increased sales volume offset to some extent by
a decrease in the average selling prices for interventional
cardiology products. Had currency exchange rates remained constant
throughout the periods, worldwide net sales would have increased by
21%. U.S. sales increased $8.1 million (21%). Foreign sales
increased $17.3 million (29%) and accounted for 62% of total sales.
At constant currency exchange rates, the increase in foreign sales
would have been 21%.
Angiography sales for the quarter totaled $119.2 million, up $25.0
million (27%). Neuroscience product sales were $4.3 million, up
$0.3 million (8%) from last year. At constant currency exchange
rates angiography and neuroscience sales would have increased by 22%
and 5%, respectively.
Operating Costs and Expenses
Cost of goods sold was 39% of net sales in both three month periods
ended September 30, 1995 and 1994. Favorable sales mix in the
current quarter due to increased sales of higher-margin
interventional cardiology products (42% of total sales compared to
37% a year ago) was offset by an adverse impact on the gross profit
margin which arose from the decreased average selling prices for
such products.
Research and development expenses were $9.8 million for the three
months, up $2.0 million (25%) from the first quarter a year ago.
Most of the increase was attributable to higher spending on
interventional cardiology and electrophysiology 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 $40.8
million, up $7.7 million (23%), from $33.1 million in the prior
year. At constant currency exchange rates, SG&A expenses would have
increased 19%. 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. Expressed as a percent of net sales,
SG&A expenses were 33% and 34% respectively.
Interest Income, Net and Other
Interest income, net and other decreased by $0.3 million due
principally to reserves for uncollectible receivables and other
items offset by higher interest income.
Income Taxes
The consolidated effective income tax rate for the three months
ended September 30, 1995 was 39% compared to 41% in the year-earlier
quarter. The decrease in the effective income tax rate was
primarily caused by a decrease in the effective domestic income tax
rate.
Net Income
Net income was $15.1 million ($0.89 per share) compared to $11.6
million ($0.70 per share) a year ago.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 11, 1995, all ongoing patent infringement litigation
and disputes between the Company and Schneider, Inc., a subsidiary
of Pfizer Inc., were settled. The terms of the settlement
agreement, which are confidential, provide for cross-licensing of
technologies involved in the disputes and litigation. Management
does not believe that the settlement will have a material impact
upon the financial condition of the Company.
On October 6, 1995, the judge approved the final settlement of the
pacer class action suit filed in the United States District Court
for the Southern District of Ohio, Western Division. The Company's
share of the settlement, $5.2 million, was paid in October 1995.
On October 19, 1995, Johnson & Johnson and JNJ Acquisition Corp.
filed a complaint in the United States District Court for the
Southern District of Florida against the Company for injunctive
and/or declaratory relief seeking, among other things, to prevent
the Company from impeding or delaying the plaintiffs' tender offer
for the Company's Common Stock which was announced on that same day.
Also on October 19, 1995, Brickell Partners filed a purported class
action complaint against the Company and eight of its directors in
the Circuit Court of the 11th Judicial Circuit in and for Dade
County, Florida alleging, among other things, breach of fiduciary
duty to maximize shareholder value by failing to adequately consider
the Johnson & Johnson offer. According to Amendment Number 2 to the
14D-1 filed by Johnson & Johnson, the Company has learned that on
October 19, 1995, Harry Lewis filed purported class action complaint
against the Company and nine of its directors in the Circuit Court
of the 11th Judicial Circuit in and for Dade County, Florida
alleging, among other things, breach of fiduciary duty to maximize
shareholder value by failing to adequately consider the Johnson &
Johnson offer. On October 20, 1995, Brickell Partners also filed
a purported class action complaint against the Company and its
directors in the United States District Court for the Southern
District of Florida alleging, among other things, breach of
fiduciary duty and violation of Section 14(a) of the Securities and
Exchange Act of 1934 and regulations promulgated thereunder.
On October 23, 1995, Laz L. Schneider, on behalf of the Laz L.
Schneider IRA Rollover also filed a purported class action
complaint against the Company and nine of its directors in the
United States District Court for the Southern District of Florida,
alleging, among other things, breach of fiduciary duty and
violation of Section 14(a) of the Securities and Exchange Act of
1934 and regulations promulgated thereunder.
The Company believes that the allegations contained in these
complaints are without merit and intends to vigorously defend
itself.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Shareholders of the Company was held on October
10, 1995. There were 12,119,324 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,
1996, was ratified by 12,020,572 votes. There were 79,497 votes
against with 19,255 abstentions.
Voting on the proposal to amend the restated Articles of
Incorporation to increase the authorized common stock was as
follows: 6,886,205 votes for, 5,178,774 votes against, and 54,345
abstentions. Although receiving a majority of the votes cast for
the proposal, the proposal did not receive the required majority of
the outstanding shares and accordingly the proposal was not
approved.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 11 Computation of primary earnings per share.
b) On October 23, 1995 a report on Form 8-K was filed to report
under Item 5, the adoption of a bylaw provision regarding a
record date procedure for written consent solicitations. On
October 25, 1995 a report on Form 8-K was filed to report under
Item 5 the adoption of a new shareholder rights agreement.
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 26, 1995
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months Ended September 30, 1995 and 1994
(Unaudited)
(Dollars in thousands except per share amounts)
1995 1994
Net income $ 15,089 $ 11,633
Common shares (000):
Weighted average common shares
outstanding 16,421 16,029
Equivalent shares from outstand-
ing options (1) 532 515
Total 16,953 16,544
Earnings per share $ .89 $ .70
(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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