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, 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)
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 16,301,327 shares of common stock
(par value $1.00 per share) as of April 21, 1995.
CORDIS CORPORATION
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 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 ............................. 7-9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................ 9
Item 5. Other Information............................ 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. 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.
1
<PAGE>
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended March 31, 1995 and 1994
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Nine Months
1995 1994 1995 1994
Net sales $117,980 $ 88,942 $321,355 $241,542
Operating costs and
expenses:
Cost of goods sold 48,079 34,517 127,083 94,449
Research and
development 8,922 6,833 24,888 19,027
Selling, general and
administrative 37,890 30,379 105,602 81,582
Total operating costs
and expenses 94,891 71,729 257,573 195,058
Operating profit 23,089 17,213 63,782 46,484
Other deductions:
Other expenses, net
of interest income 738 232 1,020 609
Income before income
taxes and cumulative
effect of accounting
change 22,351 16,981 62,762 45,875
Provision for income
taxes 8,570 6,441 24,366 17,478
Income before
cumulative effect of
accounting change 13,781 10,540 38,396 28,397
Cumulative effect of
accounting change - - - 10,115
Net income $ 13,781 $ 10,540 $ 38,396 $ 38,512
Earnings per share:
Income before
cumulative effect of
accounting change $ .82 $ .63 $ 2.30 $ 1.72
Cumulative effect of
accounting change - - - .61
Net income $ .82 $ .63 $ 2.30 $ 2.33
See accompanying notes.
2
<PAGE>
CORDIS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and June 30, 1994
(Dollars in thousands)
March 31 June 30
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 87,912 $ 48,531
Short-term investments, at cost - 7,055
Accounts receivable, net 97,896 82,502
Inventories:
Finished goods 33,933 25,770
Work-in-process 13,857 12,483
Raw materials and supplies 10,912 9,913
58,702 48,166
Deferred income taxes 11,893 10,350
Other current assets 7,877 5,942
Total current assets 264,280 202,546
Property, plant and equipment, net
of accumulated depreciation
of $76,918 at March 31, and
$64,509 at June 30 84,214 71,247
Deferred income taxes 2,561 6,844
Other assets 7,610 7,490
$ 358,665 $ 288,127
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 10,107 $ 9,057
Accounts payable 15,792 10,916
Accrued expenses 52,697 47,692
Income taxes payable 6,397 5,245
Current portion of long-term debt 708 613
Total current liabilities 85,701 73,523
Long-term liabilities:
Long-term debt 1,572 1,894
Other long-term liabilities 12,483 9,871
Total long-term liabilities 14,055 11,765
Total liabilities 99,756 85,288
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par value; authorized
50,000,000 shares; issued and
outstanding 16,298,170 shares at
March 31 and 16,001,206 shares at
June 30 16,298 16,001
Capital in excess of par value 69,560 62,016
Retained earnings 154,054 115,658
Foreign currency translation adjustments 18,997 9,164
Total shareholders' equity 258,909 202,839
$ 358,665 $ 288,127
See accompanying notes.
3
<PAGE>
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1995 and 1994
(Unaudited)
(Dollars in thousands)
1995 1994
Cash flows from operating activities:
Net income $ 38,396 $ 38,512
Noncash items included therein:
Cumulative effect of accounting change - (10,115)
Depreciation and amortization 9,198 7,240
Deferred income tax provision 4,372 2,630
Provisions for inventory obsolescence,
doubtful accounts and other 2,948 1,138
Currency transaction losses 1,203 906
Changes in assets and liabilities:
Increase in accounts receivable (13,091) (15,295)
Increase in inventories (8,587) (9,221)
Increase in other current assets (1,348) (1,174)
Increase in other assets (54) (1,368)
Increase in accounts payable and accruals 9,124 9,662
Increase in current and deferred
income taxes payable, net 596 2,965
Other, net 1,887 2,520
Net cash provided by operating activities 44,644 28,400
Cash flows from investing activities:
Additions to property, plant and equipment (17,117) (14,440)
Purchases of short-term investments - (8,969)
Proceeds from the sale of short-term investments 7,018 -
Proceeds from the sale of property, plant
and equipment 44 244
Net cash used in investing activities (10,055) (23,165)
Cash flows from financing activities:
Bank loans 433 1,320
Debt retirement (645) (4,628)
Proceeds from the sale of common stock 3,717 1,957
Repurchase of common stock - (1,100)
Net cash provided by (used in) financing
activities 3,505 (2,451)
Effect of exchange rate changes on cash 1,287 22
Increase in cash and cash equivalents 39,381 2,806
Cash and cash equivalents:
Beginning of period 48,531 42,042
End of period $ 87,912 $ 44,848
See accompanying notes.
4
<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 $.61
per share, is reported as a one time benefit in the
Consolidated Statement of Operations for the nine months ended
March 31, 1994.
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 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%.
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 sublessee intends to exercise its
sublease cancellation option on December 31, 1996. The
sublessee will accordingly be required to remit a cancellation
payment. The Company believes that such cancellation payment,
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.
5
<PAGE>
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:
March 31, June 30,
1995 1994
Net property, plant and equipment $ 16,647 $ 17,805
Other assets 1,267 1,307
Liabilities (16,013) (16,628)
Reserve for future costs (7,803) (6,316)
(5,902) (3,832)
Amount included in current
liabilities 757 842
Net liabilities - non-current $ (5,145) $ (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.
6
<PAGE>
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, 1995, operations generated
cash of approximately $44.6 million compared to $28.4 million in
the same period last year. The $16.2 million increase was
principally caused by higher income adjusted for cumulative effect
of accounting change and other non-cash items, and improved cash
collections and inventory turnover. Net cash used in investing
activities decreased to $10.1 million from $23.2 million a year
ago. The decrease was due to the proceeds from the sale of short-
term investments in fiscal 1995 versus the purchase of such
investments in fiscal 1994, offset to a certain extent by an
increase in capital expenditures. Cash provided by financing
activities increased by $6.0 million due principally to lower net
retirement of debt and the repurchases of common stock in fiscal
1994.
Working capital was $178.6 million at March 31, 1995, a $49.6
million increase from June 30, 1994. The increase was principally
due to cash generated from operations and higher accounts
receivable balances and inventory levels. Between March 31, 1995
and June 30, 1994 the current ratio increased to 3.1 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 March 31, 1995 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 March
31, 1995 such loans totaled $10.1 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 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 nine months ended March 31, 1995, net sales were
$118.0 million and $321.4 million, respectively, up $29.0 million
(33%) and $79.8 million (33%) 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, particularly those of
the Company's interventional angiographic products. Foreign sales,
which also benefited from the increased interventional angiography
sales volumes, increased by $23.5 million (46%) and $63.5 million
(47%), respectively, and accounted for 63% of total sales in the
current quarter compared to 58% a year ago. Had currency exchange
rates remained constant throughout the periods, the increases in
foreign sales would have been 32% and 36%, respectively. Sales of
angiographic products were $112.9 million and $308.3 million,
respectively, for the three and nine months ended March 31, 1995,
which represented increases over the prior year of $28.4 million
(34%) and $78.8 million (34%), respectively. Sales of neuroscience
products increased $0.7 million (15%) and $1.1 million (9%) in the
respective periods.
7
<PAGE>
Operating Costs and Expenses
Cost of goods sold expressed as a percent of sales was 41% and 40%,
respectively, for the three and nine months ended March 31, 1995,
compared to 39% in each of the corresponding prior-year periods.
The two percentage point decrease in the gross profit margin for
the current quarter was principally attributable to the impact of
a voluntary recall, announced in March 1995, of one of the
Company's steerable guidewire product lines, margin loss resulting
from decreases in average selling prices in the U.S. in the
Company's significant product lines due to competitive pricing
pressures, and unfavorable exchange rate effects upon gross profit
margins in Europe. The Company expensed approximately $1.1 million
in the third quarter of fiscal 1995 for the estimated effect of the
recall. These items were also principally responsible for the one
percentage point decrease in the gross profit margin for the nine
month period.
Research and development expenses for the three and nine months
ended March 31, 1995 were $8.9 million and $24.9 million,
respectively, increases of $2.1 million (31%) and $5.9 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 nine
months ended March 31, 1995 were $37.9 million and $105.6 million
respectively, up $7.5 million (25%) and $24.0 million (29%) 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 18% and 24%, respectively, over last
year. Expressed as a percent of sales, selling, general and
administrative expenses were 32% and 33%, respectively, in the
three and nine month periods ended March 31, 1995 and 34% in each
of the three and nine month periods ended March 31, 1994.
Other Expenses, Net
Other expenses, net of interest income increased by $0.5 million
and $0.4 million, respectively, in the three and nine months ended
March 31, 1995 compared to the prior fiscal year. The increases
were principally due to higher currency losses, higher reserves for
an uncollected receivable and other items.
8
<PAGE>
Income Taxes
The consolidated effective income tax rates for the three and nine
months ended March 31, 1995 were 38% and 39%, respectively,
compared to 38% in each of the corresponding prior year periods.
The one percentage point rate increase for the nine 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 cumulative effect of an accounting change for the
three and nine months ended March 31, 1995 was $13.8 million ($0.82
per share) and $38.4 million ($2.30 per share), respectively,
compared to $10.5 million ($0.63 per share) and $28.4 million
($1.72 per share) in the prior year periods. Net income for the
three and nine months ended March 31, 1995 was the same as stated
previously, while net income for the three and nine months ended
March 31, 1994 was $10.5 million ($0.63 per share) and $38.5
million ($2.33 per share).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the pacemaker product liability class action, the stay of the
proceedings was extended to allow for the continuation of
settlement discussions. The judge has scheduled a telephone status
conference for May 10, 1995.
The United States Court of Appeals for the Eleventh Circuit has
affirmed the Trial Court's decision granting summary judgment in
favor of the Company in connection with severance and pay in lieu
of notice claims made by former Company employees who were
transferred to the company acquiring the pacemaker business in
1987.
The Company has recently been named as a co-defendant in two class
actions asserting product liability claims arising out of certain
pacing leads manufactured and sold by TPLC, Inc. ("TPLC"), an
affiliate of TNC Medical Devices Pte. Ltd. ("TNC"), the company
that acquired the assets of the pacemaker and leads business in
1987. Over twenty (20) class action suits involving the same leads
have been filed against TPLC. Facts presently available indicate
that such leads were first marketed and sold by TPLC or its
affiliate in 1988, after an affiliate of TPLC obtained 510(k)
concurrence from the Food and Drug Administration ("FDA") for the
leads. The Company further believes that because it never
manufactured or sold the leads in question, it is not a proper
defendant to these actions and will seek dismissal in all cases in
which the Company is named. Moreover, the Company believes it is
entitled to indemnification from TNC pursuant to the Acquisition
Agreement by and between TNC and the Company involving the sale of
the pacemaker and leads businesses ("Acquisition Agreement"). TNC
has notified the Company that the Company may have liability
regarding the leads claims, pursuant to the Acquisition Agreement,
however, based upon the information available indicating that the
Company did not manufacture or sell the leads in question, the
Company does not believe it has any liability to TNC or to lead
recipients for any of the claims asserted.
9
<PAGE>
In the Schneider (USA) Inc. litigation against the Company, a trial
date is expected to be scheduled in June or July 1995. In the
Dutch action instituted by Schneider against the Company, the trial
date has been scheduled for June 28, 1995. In the Company's
summary proceedings against Schneider in the Netherlands involving
the Company's patents relating to the Company's nylon balloon
technology, the court denied the Company's request for an
injunction. The Company intends to appeal that decision.
Decisions regarding injunctions in the various European actions
instituted by the Company against Schneider regarding the nylon
balloon technology are anticipated over the next year.
Item 5. Other Information
The Company was notified on March 21, 1995 that the United States
Food and Drug Administration ("FDA") is satisfied with the response
to a Warning Letter issued on December 30, 1994, and that the
Company has been removed from the FDA's reference list.
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 March 31, 1995.
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: April 28, 1995
10
<PAGE>
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months and Nine Months Ended March 31, 1995 and 1994
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Nine Months
1995 1994 1995 1994
Income before cumulative
effect of accounting
change $13,781 $10,540 $38,396 $28,397
Cumulative effect of
accounting change - - - 10,115
Net income $13,781 $10,540 $38,396 $38,512
Common shares (000):
Weighted average common
shares outstanding 16,218 16,022 16,119 15,970
Equivalent shares from
outstanding options (1) 576 627 560 557
Total 16,794 16,649 16,679 16,527
Earnings per share:
Income before cumulative
effect of accounting
change $ .82 $ .63 $ 2.30 $ 1.72
Cumulative effect of
accounting change - - - .61
Net income $ .82 $ .63 $ 2.30 $ 2.33
(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.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> QTR-3 9-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1995
<PERIOD-END> MAR-31-1995 MAR-31-1995
<CASH> 87,912 87,912
<SECURITIES> 0 0
<RECEIVABLES> 97,896 97,896
<ALLOWANCES> 0 0
<INVENTORY> 58,702 58,702
<CURRENT-ASSETS> 264,280 264,280
<PP&E> 84,214 84,214
<DEPRECIATION> 76,918 76,918
<TOTAL-ASSETS> 358,665 358,665
<CURRENT-LIABILITIES> 85,701 85,701
<BONDS> 0 0
<COMMON> 16,298 16,298
0 0
0 0
<OTHER-SE> 242,611 242,611
<TOTAL-LIABILITY-AND-EQUITY> 358,665 358,665
<SALES> 117,980 321,355
<TOTAL-REVENUES> 117,980 321,355
<CGS> 48,079 127,083
<TOTAL-COSTS> 94,891 257,573
<OTHER-EXPENSES> 738 1,020
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 22,351 62,762
<INCOME-TAX> 8,570 24,366
<INCOME-CONTINUING> 13,781 38,396
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,781 38,396
<EPS-PRIMARY> 0.82 2.30
<EPS-DILUTED> 0.82 2.30
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