FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT #1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTER ENDED March 31, 1996 COMMISSION FILE NO. 0-12025
CIRCON CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-3079904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Hollister Avenue, Santa Barbara, California 93117-3019
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (805) 685-5100
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 twelve 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
Number of Common Shares Outstanding at March 31, 1996: 12,574,196
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March, 31
(In thousands, except per share amounts)
(UNAUDITED) (UNAUDITED)
1995 1996
---------- ---------
NET SALES $ 37,921 $ 39,962
Cost of sales 17,398 17,764
---------- ---------
GROSS PROFIT 20,523 22,198
OPERATING EXPENSES:
Research and development 2,612 2,975
Selling, general and administrative 15,848 15,645
---------- ----------
Total operating expenses 18,460 18,620
INCOME FROM OPERATIONS 2,063 3,578
Interest income 363 95
Interest expense (1,440) (1,128)
Other income (expense), net 53 (62)
---------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,039 2,483
Provision for income taxes 418 824
---------- -----------
NET INCOME $ 621 $ 1,659
========== ===========
EARNINGS PER SHARE $ 0.05 $ 0.13
========== ===========
Weighted Average Number of Shares of Common
Stock and Equivalents Outstanding 12,778 13,114
========== ==========
The accompanying notes are an integral part of
these consolidated statements.
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March, 31
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1995 1996
-------- -------
Net income 621 1,659
Adjustments to reconcile net
income to cash provided by (used in)
operating activities:
Depreciation and amortization 2,476 2,380
Deferred income taxes 8 310
Change in assets and liabilities:
Accounts receivable 394 (1,030)
Inventories (935) (1,003)
Prepaid expenses and other assets (148) (785)
Other assets 272 123
Accounts payable 814 (2,302)
Accrued liabilities (1,706) (172)
Customer deposits 13 112
--------- ---------
Net cash provided by (used in) operating activities 1,809 (708)
--------- ---------
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March, 31
(In Thousands)
CASH FLOWS FROM INVESTING ACTIVITIES 1995 1996
-------- --------
Disposals of marketable securities, net 318 5,911
Purchases of property, plant and equipment (3,549) (2,365)
Cumulative translation adjustment 448 577
-------- --------
Net cash provided by (used in) investing activities (2,783) 4,123
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 151 82
Repayments of capital lease obligations (135) (20)
Repayments of long-term obligations (362) (12,783)
Tax benefit from exercise of stock options 244 12
Other (149) 0
--------- --------
Net cash used in financing activities (251) (12,709)
--------- --------
Net decrease in cash and temporary
cash investments (1,225) (9,294)
Cash and temporary cash investments, beginning
of period (reflects Cabot cash as of Dec 31, 1995) 2,882 17,586
--------- --------
Cash and temporary cash investments, end of period $ 1,657 $ 8,292
========= ========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 2,592 $ 66
======== ========
Cash paid for income taxes $ 176 $ 274
======== ========
The accompanying notes are an integral part of
these consolidated statements.
ITEM 2. Management's Discussion and Analysis of Operations and Financial
Condition
RESULTS OF OPERATIONS
---------------------
Three Months Ended March 31, 1996
Compared to Three Months Ended March 31, 1995
Sales
-------
Total sales of $40.0 million were up 5.4% over first quarter 1995.
U.S. sales force sales and international sales increased 9% and 7%,
respectively. These were partially offset by a 19% decrease in dealer
sales and a 16% decrease in industrial sales. Price increases accounted
for 1% of the sales increase.
Gross Profit
-------------
First quarter gross profit totaled $22.2 million or 55.5% of sales
compared to $20.5 million or 54.1% for the same period last year.
The improvement was the result of increased manufacturing efficiencies
and sales of higher margin products.
Operating Expense
-----------------
Total operating expenses increased 1% over first quarter 1995 as
compared to a 5.4% sales increase. Selling and general administrative
expense decreased 1.2% reflecting economies gained from the merger
of Circon and Cabot.
Research and development expenditures totaled $3.0 million, up
14% over prior year reflecting continued emphasis on new product
development. As a percent of sales, R&D expense was 7.4% compared
to 6.9% for prior year.
Income from Operations
-----------------------
Operating income was up 73% to $3.6 million due to increased
sales and gross profits and operating expense trends discussed above.
Interest and Other Expense
--------------------------
Interest expense of $1,128,000 decreased $312,000 from prior year
due to reduced loan balances. Interest income of $95,000 decreased
$268,000 from prior year due to lower investment balances.
Income Taxes
-------------
The provision for income taxes of 33% compared to 35.5% in 1995
decreased due to the ability of the company to utilize some of the NOL from
Cabot.
Net Income
-----------
Net income of $1.7 million was up 167% over comparable 1995 due
to increased sales and higher profit margins.
Subsequent Events
------------------
The company will be closing Cabot Medical's smaller facility in
Langhorne, Pennsylvania, and taking other consolidating actions by the end
of the third quarter 1996. As a result of this consolidation and related tax
benefits, Circon is targeting after tax benefits of $0.8 million in 1996,
(including a credit of approximately $2.0 million to the provision for income
taxes resulting from the liquidation of Cabot and related realization of
Cabot tax benefits), $1.8 million in 1997 and each subsequent year
compared to not taking these actions. The targeted one time operating cost,
associated with closing the facility, is $1.8 million in 1996, but will yield
$2.6 million in operating cost savings in 1997 and each subsequent year
compared to not consolidating.
This consolidation is targeted to produce a $0.8 million benefit in
the second quarter, (including a credit of approximately $2.0 million to the
provision for income taxes resulting from the liquidation of Cabot and
related realization of Cabot tax benefits), a $0.2 million cost in the third
quarter and a benefit of $0.2 million in the fourth quarter, for a full year
1996 after tax benefit of $0.8 million. In the years 1997 and beyond, the
after tax benefit is targeted for $0.45 million per quarter or $1.8 million
per year.
The major costs associated with closing the facility and relocating
the production activities are targeted to occur in the second quarter and
total $1.8 million for 1996. By the fourth quarter, operating savings of
$0.3 million are targeted. In the years 1997 and beyond, this consolidation
is targeted to produce operational savings of $0.65 million per quarter
or $2.6 million per year.
Liquidity and Capital Resources
--------------------------------
Circon has a $75.0 million secured revolving credit line with a
syndicate of banks. $50.5 million of this facility was used to repurchase
Cabot notes in January 1996 (see note 2).
As of March 31, 1996, the company had cash and marketable
securities totaling $8.9 million.
The company believes that cash flow from operations, existing
cash and marketable securities and available cash from bank credit
facilities are adequate to fund the company's existing operation for the
foreseeable future.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, this amended report has been signed below
bt the Chief Accounting Officer.
Fred Wallach Vice President, Controller June 4, 1996
