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, 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 16,154,291 shares of common stock
(par value $1.00 per share) as of January 20, 1995.
CORDIS CORPORATION
FORM 10-Q
THREE MONTHS ENDED DECEMBER 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 .. 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................. 7-9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................ 9
Item 5. Other Information............................ 9
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. Certain amounts in prior years have been
reclassified to conform to the 1995 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 and Six Months Ended December 31, 1994 and 1993
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Six Months
1994 1993 1994 1993
Net sales $105,264 $ 79,453 $203,375 $152,600
Operating costs and
expenses:
Cost of goods sold 40,958 31,560 79,004 59,932
Research and
development 8,096 6,239 15,966 12,194
Selling, general and
administrative 34,639 26,757 67,712 51,203
Total operating costs
and expenses 83,693 64,556 162,682 123,329
Operating profit 21,571 14,897 40,693 29,271
Other deductions:
Other expenses, net
of interest income 865 63 282 377
Income before income
taxes and cumulative
effect of accounting
change 20,706 14,834 40,411 28,894
Provision for income
taxes 7,724 5,700 15,796 11,037
Income before
cumulative effect of
accounting change 12,982 9,134 24,615 17,857
Cumulative effect of
accounting change - - - 10,115
Net income $ 12,982 $ 9,134 $ 24,615 $ 27,972
Earnings per share:
Income before
cumulative effect of
accounting change $ .78 $ .55 $ 1.48 $ 1.09
Cumulative effect of
accounting change - - - .61
Net income $ .78 $ .55 $ 1.48 $ 1.70
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and June 30, 1994
(Dollars in thousands)
December 31 June 30
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 63,276 $ 48,531
Short-term investments, at cost - 7,055
Accounts receivable, net 87,863 82,502
Inventories:
Finished goods 31,917 25,770
Work-in-process 12,797 12,483
Raw materials and supplies 10,101 9,913
54,815 48,166
Deferred income taxes 12,086 10,350
Other current assets 5,519 5,942
Total current assets 223,559 202,546
Property, plant and equipment, net
of accumulated depreciation of
$70,311 at December 31, and
$64,509 at June 30 76,342 71,247
Deferred income taxes 3,726 6,844
Other assets 7,311 7,490
$ 310,938 $ 288,127
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,223 $ 9,057
Accounts payable 10,518 10,916
Accrued expenses 44,925 47,692
Income taxes payable 6,275 5,245
Current portion of long-term debt 500 613
Total current liabilities 65,441 73,523
Long-term liabilities:
Long-term debt 1,612 1,894
Other long-term liabilities 12,390 9,871
Total long-term liabilities 14,002 11,765
Total liabilities 79,443 85,288
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par value; authorized
50,000,000 shares; issued and
outstanding 16,137,998 shares at
December 31 and 16,001,206 shares at
June 30 16,138 16,001
Capital in excess of par value 66,080 62,016
Retained earnings 140,273 115,658
Foreign currency translation adjustments 9,004 9,164
Total shareholders' equity 231,495 202,839
$ 310,938 $ 288,127
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1994 and 1993
(Unaudited)
(Dollars in thousands)
1994 1993
Cash flows from operating activities:
Net income $ 24,615 $ 27,972
Noncash items included therein:
Cumulative effect of accounting change - (10,115)
Depreciation and amortization 6,206 4,782
Deferred income tax provision 3,138 1,679
Provisions for inventory obsolescence,
doubtful accounts and other 1,282 515
(Gain)loss on disposition of property,
plant and equipment (22) 91
Currency transaction losses 302 569
Changes in assets and liabilities:
Increase in accounts receivable (5,896) (7,615)
Increase in inventories (6,919) (5,793)
Decrease in other current assets 484 201
Increase in other assets (617) (395)
(Decrease) increase in accounts payable
and accruals (1,874) 5,483
Increase in current and deferred
income taxes payable, net 72 2,359
Other, net 2,573 1,196
Net cash provided by operating activities 23,344 20,929
Cash flows from investing activities:
Additions to property, plant and equipment (10,486) (8,176)
Proceeds from the sale of short-term investments 7,018 -
Proceeds from the sale of property, plant
and equipment 44 214
Net cash used in investing activities (3,424) (7,962)
Cash flows from financing activities:
Bank loans - 906
Debt retirement (6,262) (5,668)
Proceeds from the sale of common stock 1,012 609
Repurchase of common stock - (1,100)
Net cash used in financing activities (5,250) (5,253)
Effect of exchange rate changes on cash 75 8
Increase in cash and cash equivalents 14,745 7,722
Cash and cash equivalents:
Beginning of period 48,531 42,042
End of period $ 63,276 $ 49,764
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 $.61
per share, is reported as a one time benefit in the
Consolidated Statement of Operations for the six months ended
December 31, 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 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%.
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 1994, the sublessee's parent sold the assets of the
sublessee to an unrelated third party. The Company has been
verbally notified that the third party and the sublessee are
reviewing their options under the sublease, which includes the
potential exercise of the cancellation option on December 31,
1996. If the cancellation option is exercised, the third
party or the sublessee 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 included in accrued expenses and other long-term
liabilities, and are reflected below in thousands:
December 31, June 30,
1994 1994
Net property, plant and equipment $ 17,033 $ 17,805
Other assets 1,281 1,307
Liabilities (16,223) (16,628)
Reserve for future costs (8,202) (6,316)
(6,111) (3,832)
Amount included in current
liabilities 787 842
Net liabilities - non-current $ (5,324) $ (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.
<PAGE>
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, 1994, operations generated
cash of approximately $23.3 million compared to $20.9 million in
the same period last year. The $2.4 million increase was
principally caused by higher income adjusted for non-cash items,
offset partially by reductions in accounts payable and accrued
expenses. Net cash used in investing activities decreased to $3.4
million from $8.0 million a year ago. The decrease was due to the
proceeds from the sale of short-term investments, offset to a
certain extent by an increase in capital expenditures. Cash used
in financing activities was approximately constant at $5.3 million
in both periods; higher debt retirement in fiscal 1995 was offset
by non-recurring repurchases of common stock in fiscal 1994.
Working capital was $158.1 million at December 31, 1994, a $29.1
million increase from June 30, 1994. The increase was principally
due to cash generated from operations and higher accounts
receivable balances and higher inventory levels. Between December
31, 1994 and June 30, 1994 the current ratio increased to 3.4 from
2.8.
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, 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 December
31, 1994 such loans totaled $3.2 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
sublease by the sublessee. 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 six months ended December 31, 1994, net sales
were $105.3 million and $203.4 million, respectively, up $25.8
million (32%) and $50.8 million (33%) 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 $21.0 million (47%) and $40.0 million
(47%), respectively, and accounted for 62% of total sales in the
current quarter compared to 56% a year ago. Had currency exchange
rates remained constant throughout the periods, the increases in
foreign sales would have been 37% and 39%, respectively. Sales of
angiographic products were $101.2 million and $195.3 million,
respectively, for the three and six months ended December 31, 1994,
which represented increases over the prior year of $25.5 million
(34%) and $50.4 million (35%), respectively. Sales of neuroscience
products increased $0.3 million (7%) and $0.4 million (5%) in the
respective periods.
Operating Costs and Expenses
Cost of goods sold expressed as a percent of sales was 39% in each
of the three and six months ended December 31, 1994 respectively,
compared to 40% and 39% in the corresponding periods of the prior
fiscal year. The one percentage point decrease in expense in the
three months ended December 31, 1994 was principally due to
proportionately lower royalty and license fee expenses; in the
second quarter of fiscal 1994 the Company expensed $1.6 million as
a license fee related to a settlement agreement with C.R. Bard of
which approximately $1.4 million related to the period from May
1991 to September 1993.
Research and development expenses for the three and six months
ended December 31, 1994 were $8.1 million and $16.0 million,
respectively, increases of $1.9 million (30%) and $3.8 million
(31%) from the prior year. The increases in research and
development expenses were principally due to higher spending on
interventional angiography and other products in the U.S. and
diagnostic angiography products in Europe. Expressed as a percent
of sales, research and development expenses were 8% in all periods
presented.
Selling, general and administrative expenses for the three and six
months ended December 31, 1994 were $34.6 million and $67.7 million
respectively, up $7.9 million (29%) and $16.5 million (32%) 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, higher salaries and employee benefits
attributable to headcount increases and adverse foreign currency
exchange rate effects. If currency rates had remained constant
throughout the periods, selling, general and administrative
expenses would have increased 24% and 28%, respectively, over last
year. Expressed as a percent of sales, selling, general and
administrative expenses were 33% in each of the three and six month
periods ended December 31, 1994 and 34% in each of the three and
six month periods ended December 31, 1993.
Other Expenses, Net
Other expenses, net of interest income increased by $0.8 million
and decreased by $0.1 million, respectively, in the three and six
months ended December 31, 1994 compared to the prior fiscal year.
The increase in the net expense for the three months ended December
31, 1994 was principally due to higher reserves for an
uncollectible receivable and other items.
Income Taxes
The consolidated effective income tax rates for the three and six
months ended December 31, 1994 were 37% and 39%, respectively,
compared to 38% in each of the corresponding prior year periods.
The one percentage point decrease in the effective rate for the
current quarter was principally due to a lower effective rate in
Europe, while the one percentage point rate increase for the six
months was principally due to the beneficial effect of a one-time
adjustment in fiscal 1994 related to an increase in the U.S.
corporate tax rate.
Net Income
Income before the cumulative effect of an accounting change for
the three and six months ended December 31, 1994 was $13.0 million
($0.78 per share) and $24.6 million ($1.48 per share),
respectively, compared to $9.1 million ($0.55 per share) and $17.9
million ($1.09 per share) in the prior year periods. Net income
for the three and six months ended December 31, 1994 was the same
as stated previously, while net income for the three and six months
ended December 31, 1993 was $9.1 million ($0.55 per share) and
$28.0 million ($1.70 per share).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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. The Company's patent was found valid in the
Netherlands action.
In the Schneider (USA) Inc. litigation against the Company, court-
ordered settlement discussions are in process.
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 through February 21, 1995 pending the conclusion of
settlement negotiations. A second settlement conference has been
scheduled for January 31, 1995.
Item 5. Other Information
On December 30, 1994, after concluding an inspection of the
Company's facilities in Miami, Florida from October 27, 1994
through December 14, 1994, the United States Food and Drug
Administration ("FDA") issued a Warning Letter alleging that the
Company violated certain Good Manufacturing Practices (GMP's).
Approval for certain premarket approval filings (PMA's) covering
PTCA Dilatation catheters will be withheld until the FDA determines
that compliance with the GMP's is achieved and verified by
inspection. Other Federal Agencies are routinely advised of
Warning Letters which they may take into account in considering the
award of contracts. The FDA has additionally indicated that other
pending applications or export requests may not be approved until
the agency is satisfied that the Company has corrected the alleged
deficiencies. The Company is in the process of responding to the
Warning Letter.
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, 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: January 26, 1995
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months and Six Months Ended December 31, 1994 and 1993
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Six Months
1994 1993 1994 1993
Income before cumulative
effect of accounting
change $12,982 $ 9,134 $24,615 $17,857
Cumulative effect of
accounting change - - - 10,115
Net income $12,982 $ 9,134 $24,615 $27,972
Common shares (000):
PRIMARY
Weighted average common
shares outstanding 16,109 15,950 16,069 15,943
Equivalent shares from
outstanding options (1) 590 603 552 523
Total 16,699 16,553 16,621 16,466
FULLY DILUTED
Weighted average common
shares outstanding 16,109 15,950 16,069 15,943
Equivalent shares from
outstanding options (1) 610 687 593 565
Total 16,719 16,637 16,662 16,508
Earnings per share:
PRIMARY
Income before cumulative
effect of accounting
change $ .78 $ .55 $ 1.48 $ 1.09
Cumulative effect of
accounting change - - - .61
Net income $ .78 $ .55 $ 1.48 $ 1.70
FULLY DILUTED
Income before cumulative
effect of accounting
change $ .78 $ .55 $ 1.48 $ 1.08
Cumulative effect of
accounting change - - - .61
Net income $ .78 $ .55 $ 1.48 $ 1.69
(1) Computed using the treasury stock method based on the average price during
the periods for primary earnings per share and the higher of the average
price during the periods or the end of period closing price for fully
diluted earnings per share.
NOTE: The fully diluted calculation is submitted in accordance with Regulation
S-K item 601(b) (11) although not required by Accounting Principles
Board Opinion No.15 because it results in a dilution of less than 3%.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1995
<PERIOD-END> DEC-31-1994 DEC-31-1994
<CASH> 63,276 63,276
<SECURITIES> 0 0
<RECEIVABLES> 90,252 90,252
<ALLOWANCES> 2,389 2,389
<INVENTORY> 54,815 54,815
<CURRENT-ASSETS> 223,559 223,559
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0 0
0 0
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