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, 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)
(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 16,524,852 shares of common stock
(par value $1.00 per share) as of February 2, 1996.
CORDIS CORPORATION
FORM 10-Q
THREE MONTHS ENDED DECEMBER 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
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................. 6-8
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................ 8-9
Item 5. Other Information............................ 9
Item 6. Exhibits and Reports on Form 8-K............. 9
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 and those adjustments related to
business combination expenses, 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 fiscal
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 and Six Months Ended December 31, 1995 and 1994
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Six Months
1995 1994 1995 1994
Net sales $132,585 $105,264 $256,026 $203,375
Operating costs and
expenses:
Cost of goods sold 47,349 40,958 95,830 79,004
Research and
development 10,827 8,096 20,654 15,966
Selling, general and
administrative 47,413 34,639 88,187 67,712
Total operating costs
and expenses 105,589 83,693 204,671 162,682
Operating profit 26,996 21,571 51,355 40,693
Other (income) deductions:
Business combination
expenses 7,000 - 7,000 -
Other (income) expenses,
net of interest income (319) 865 (587) 282
Income before income
taxes 20,315 20,706 44,942 40,411
Provision for income
taxes 10,116 7,724 19,654 15,796
Net income $ 10,199 $ 12,982 $ 25,288 $ 24,615
Earnings per share $ .59 $ .78 $ 1.48 $ 1.48
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and June 30, 1995
(Dollars in thousands)
December 31 June 30
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 97,930 $ 100,558
Accounts receivable, net 110,007 103,835
Inventories:
Finished goods 40,109 36,306
Work-in-process 11,575 12,188
Raw materials and supplies 16,188 10,089
67,872 58,583
Deferred income taxes 15,417 7,133
Other current assets 20,947 17,480
Total current assets 312,173 287,589
Property, plant and equipment, net of
accumulated depreciation of $86,393
at December 31 and $81,076 at June 30 94,857 88,493
Minority investment in Biosense, Inc. 15,000 1,000
Deferred income taxes 1,460 9,628
Other assets 16,480 8,252
$ 439,970 $ 394,962
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 6,930 $ 9,828
Accounts payable 15,702 14,854
Accrued expenses 75,698 61,724
Income taxes payable 9,002 6,933
Current portion of long-term debt 550 669
Total current liabilities 107,882 94,008
Long-term liabilities:
Long-term debt 1,102 1,484
Other long-term liabilities 14,912 17,625
Total long-term liabilities 16,014 19,109
Total liabilities 123,896 113,117
Commitments and contingencies (Note 2)
Shareholders' equity:
Common stock, $1 par value; authorized
50,000,000 shares; issued and out-
standing 16,518,019 shares at December 31
and 16,361,568 shares at June 30 16,518 16,362
Capital in excess of par value 84,155 74,503
Retained earnings 190,988 165,866
Unrealized gain on investment, net of
deferred income taxes of $3,803 at
December 31 and $1,755 at June 30 6,760 2,745
Foreign currency translation adjustments 17,653 22,369
Total shareholders' equity 316,074 281,845
$ 439,970 $ 394,962
See accompanying notes.
CORDIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1995 and 1994
(Unaudited)
(Dollars in thousands)
1995 1994
Cash flows from operating activities:
Net income $ 25,288 $ 24,615
Noncash items included therein:
Depreciation and amortization 7,299 6,206
Deferred income tax (benefit) provision (333) 3,138
Provisions for inventory obsolescence,
doubtful accounts and other 1,825 1,562
Changes in assets and liabilities:
Increase in accounts receivable (8,152) (5,896)
Increase in inventories (9,442) (6,919)
Decrease in other current assets 2,342 484
Increase in other assets (6,349) (617)
Increase in accounts payable
and accruals 17,660 526
Increase in current and deferred income
taxes payable, net 2,200 72
Other, net (881) 173
Net cash provided by operating activities 31,457 23,344
Cash flows from investing activities:
Additions to property, plant
and equipment (13,582) (10,486)
Purchase of minority investment in
Biosense, Inc. (14,000) -
Purchase of assets related to custom pack
business (6,527) -
Proceeds from the sale of short-term
investments - 7,018
Proceeds from the sale of property, plant
and equipment 48 44
Net cash used in investing activities (34,061) (3,424)
Cash flows from financing activities:
Debt retirement (3,687) (6,262)
Dividends paid (166) -
Proceeds from the sale of common stock 4,744 1,012
Net cash provided by (used in)
financing activities 891 (5,250)
Effect of exchange rate changes on cash (915) 75
(Decrease) increase in cash and cash
equivalents (2,628) 14,745
Cash and cash equivalents:
Beginning of period 100,558 48,531
End of period $ 97,930 $ 63,276
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, which resulted in the sublessee vacating the building
and paying the Company a termination penalty of $5.45 million.
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 or buyer 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:
December 31, June 30,
1995 1995
Net property, plant and equipment $ 11,928 $ 16,261
Other assets 606 1,253
Liabilities (15,352) (15,799)
Reserve for future costs (8,454) (7,410)
(11,272) (5,695)
Amount included in current
(liabilities) assets (2,654) 2,930
Net liabilities - non-current $ (8,618) $ (8,625)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company, Johnson & Johnson ("J&J"), a New Jersey corporation,
and JNJ Merger Corp., a wholly owned subsidiary of J&J ("Merger
Sub"), a Florida corporation, have entered into an Agreement and
Plan of Merger dated as of November 12, 1995, as amended on
December 27, 1995 (the "Merger Agreement"), which provides for,
among other things, the Merger of Merger Sub into the Company.
Pursuant to the Merger Agreement, the Company will become a wholly
owned subsidiary of J&J, and each share of Common Stock, par value
$1.00 per share, of the Company, issued and outstanding at the
effective time of the Merger, together with the associated right
under the Company's Rights Agreement, will be converted into the
right to receive that number of shares of Common Stock, par value
$1.00 per share, of J&J equal to the amount obtained by dividing
$109 by the average of the closing prices per share of J&J Common
Stock on the New York Stock Exchange for the 10 trading days
immediately preceding the closing date of the Merger. The Merger
is more completely described in the Proxy Statement/Prospectus
dated January 25, 1996 which is incorporated by reference. A
special meeting of the shareholders of the Company, will be held on
Friday, February 23, 1996 to consider and vote upon a proposal to
approve the Merger Agreement.
Liquidity and Capital Resources
During the six months ended December 31, 1995, operations generated
cash of approximately $31.5 million compared to $23.3 million in
the same period last year. The $8.1 million increase was
principally caused by increases in accrued expenses offset
partially by an increase in other assets. Net cash used in
investing activities increased to $34.1 million from $3.4 million
a year ago. The $30.6 million increase was principally due to the
purchase of a minority investment in Biosense, Inc. for $14.0
million, the purchase of the assets related to a custom pack
business for $6.5 million, and proceeds of $7.0 million received
from the sale of short-term investments in fiscal 1995 which did
not recur. Cash provided by financing activities was approximately
$6.1 million higher than a year ago due principally to lower debt
retirement and higher proceeds from the sale of common stock.
Working capital was $204.3 million at December 31, 1995, a $10.7
million increase from June 30, 1995. The increase was principally
due to higher inventory, accounts receivable and deferred income
tax balances offset by higher accrued expenses. Between December
31, 1995 and June 30, 1995 the current ratio decreased to 2.9 from
3.1 primarily due to the accrual of the business combination
expenses.
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, 1995 or June
30, 1995. This credit facility will be terminated if the Merger is
consummated. 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, 1995 such loans totaled $6.9 million compared to $9.8 million
at June 30, 1995.
Management anticipates that cash generated from operations and cash
on hand will be sufficient to meet the Company's current operating
requirements and to cover the effects of the cancellation of the
sublease of ATC 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, 1995, net sales
were $132.6 million and $256.0 million, respectively, up $27.3
million (26%) and $52.7 million (26%) from the same periods last
year. The increase in sales for both the three and six month
periods were principally due to increased sales volumes of the
Company's interventional angiographics products, offset by
continued decreases in the average selling prices for such
products. U.S. sales increased by 31% and 26%, respectively, for
the three and six months ended December 31, 1995 and accounted for
39% of total sales in the current quarter compared to 38% a year
ago. Foreign sales increased by 23% and 26% in the respective
periods; had currency exchange rates remained constant throughout
the periods the increases in foreign sales would have been 17% and
19%, respectively. Sales of angiographic products were $128.3
million and $247.4 million respectively, for the three and six
months ended December 31, 1995, which represented increases over
the prior year of $27.1 million (27%) and $52.1 million (27%),
respectively. Sales of neuroscience products increased $0.2
million (5%) and $0.6 million (7%) in the respective periods.
Operating Costs and Expenses
Cost of goods sold expressed as a percent of sales was 36% and 37%,
respectively, in the three and six months ended December 31, 1995,
compared to 39% in each of the three and six months ended December
31, 1994. The increases in the gross margins, from 61% to 64% for
the comparable quarters and from 61% to 63% for the six months,
were principally due to lower unit product costs in the U.S. which
resulted from increased production volumes of angiographic
products, and a more favorable sales mix. These factors more than
offset the adverse impact upon margins of the aforementioned
decline in average selling prices for the Company's interventional
cardiology products in the U.S. and Europe.
Research and development expenses for the three and six months
ended December 31, 1995 were $10.8 million and $20.7 million
respectively, increases of $2.7 million (34%) and $4.7 million
(29%) from the prior year. The increases in research and
development expenses were principally due to higher spending on
interventional angiography and electrophysiology product lines 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, 1995 were $47.4 million and $88.2 million
respectively, up $12.8 million (37%) and $20.5 million (30%) from
the corresponding periods of last year. The increases in selling,
general and administrative expenses were principally due to higher
employee incentives and 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 33% and
26%, respectively, over last year. Expressed as a percent of
sales, selling, general and administrative expenses were 36% and
34%, respectively, in the three and six months ended December 31,
1995 compared to 33% in each of the three and six month periods
ended December 31, 1994.
Business Combination Expenses
The $7.0 million expense for the three and six months ended
December 31, 1995 ($0.41 per share) represents estimated legal and
investment banker costs, registration fees and other expenses
incurred for the periods in connection with the Merger.
Other (Income) Expenses, Net of Interest Income
Other (income) expenses, net of interest income increased by $1.2
million and $0.9 million, respectively, in the three and six months
ended December 31, 1995 compared to the prior fiscal year. The
increases were principally due to accruals in the prior fiscal year
for legal costs pertaining to a lawsuit related to the Company's
former pacing operations which did not recur in fiscal 1996.
Income Taxes
The consolidated effective income tax rates for the three and six
months ended December 31, 1995 were 50% and 44%, respectively,
compared to 37% and 39% in the corresponding prior year periods.
The 13 percentage point increase in the current quarter's rate and
the 5 percentage point increase in the rate for the six months were
principally due to the incurrence of the aforementioned business
combination costs, which are not deductible for income tax
purposes. Without these expenses, the effective rate for the
current quarter would have been the same as last year, and the rate
for the six months would have been one percentage point lower.
Net Income
Net income for the three and six months ended December 31, 1995 was
$10.2 million ($0.59 per share) and $25.3 million ($1.48 per
share), respectively, compared to $13.0 million ($0.78 per share)
and $24.6 million ($1.48 per share) in the prior year periods.
Excluding the business combination costs of $7.0 million ($0.41 per
share), net income for the three and six months ended December 31,
1995 would have been $17.2 million ($1.00 per share) and $32.3
million ($1.89 per share), respectively.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has 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. and a subsidiary of Telectronics
Pacing Systems. The Company was named in a third action but was
not served with the complaint within the required time period.
Approximately 240 suits involving the same models of leads have
been filed against TPLC and its affiliates to date. The Judicial
Panel on Multidistrict Litigation has consolidated approximately
200 of those actions for pretrial proceedings in the United States
District Court, Southern District of Ohio, Western Division
(Cincinnati). Neither the Company nor its subsidiaries have been
named as defendants in the master class action complaint filed in
the consolidated proceedings. The plaintiffs have requested that
the Company sign a tolling agreement and have indicated that if a
final agreement is not reached, plaintiffs' counsel will amend the
master class action complaint to include the Company. On November
17, 1995, a class was certified in the consolidated proceedings
with respect to TPLC and certain other defendants. That
certification did not apply to the Company. The Company has filed
motions requesting that it be dismissed from the actions in which
it has been named as a defendant, asserting, among other things,
that it did not manufacture, sell or distribute the leads that are
the subject of the litigation.
In the Shareholder Actions filed in the United States District
Court for the Southern District of Florida against the Company and
its current directors and a former director, the Company filed its
answer. The Company believes that the shareholders' claims are
moot as a result of the Merger Agreement. The Court has ordered
that the parties meet to agree on scheduling issues.
Item 5. Other Information
On January 22, 1996, J&J and the Company announced that the due
diligence period pursuant to the Merger Agreement had expired and
that a special meeting of the Company's shareholders to approve the
Merger Agreement had been scheduled for February 23, 1996.
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.
On November 12, 1995, a report on Form 8-K was filed to report
under Item 5, the Agreement and Plan of Merger entered into
between Cordis Corporation, Johnson & Johnson and JNJ Merger
Corp.
On December 27, 1995, a report on Form 8-K was filed to report
under Item 5, a First Amendment to the Agreement and Plan of
Merger referred to in the preceding paragraph whereby Johnson
& Johnson's due diligence review period was extended until
January 22, 1996.
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: February 9, 1996
Exhibit 11
CORDIS CORPORATION
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months and Six Months Ended December 31, 1995 and 1994
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Six Months
1995 1994 1995 1994
Net income $10,199 $12,982 $25,288 $24,615
Common shares (000):
Weighted average common
shares outstanding 16,517 16,109 16,469 16,069
Equivalent shares from
outstanding options (1) 636 590 584 552
Total 17,153 16,699 17,053 16,621
Earnings per share $ .59 $ .78 $ 1.48 $ 1.48
(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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<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
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<SECURITIES> 0 0
<RECEIVABLES> 113,450 113,450
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