UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2002
| o | 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 1-15525
EDWARDS LIFESCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 36-4316614 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Edwards Way, Irvine, California |
92614 |
|
| (Address of principal executive offices) | (Zip Code) |
(949) 250-2500
(Registrant's telephone number, including area code)
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 number of shares of the registrant's common stock, par value $1.00 per share, outstanding as of October 31, 2002, the latest practicable date, was 60,056,857 shares.
EDWARDS LIFESCIENCES CORPORATION
FORM 10-Q
For the quarterly period ended September 30, 2002
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Page Number |
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| Part I. FINANCIAL INFORMATION | ||||
Item 1. |
Financial Statements (Unaudited) |
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Consolidated Condensed Balance Sheets |
1 |
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Consolidated Condensed Statements of Operations |
2 |
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Consolidated Condensed Statements of Cash Flows |
3 |
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Notes to Consolidated Condensed Financial Statements |
4 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
13 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
20 |
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Item 4. |
Controls and Procedures |
22 |
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Part II. OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
23 |
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Item 2. |
Changes in Securities and Use of Proceeds |
23 |
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Item 6. |
Exhibits and Reports on Form 8-K |
24 |
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Signature |
25 |
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Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
26 |
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Exhibits |
28 |
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EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited) (in millions, except share data)
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September 30, 2002 |
December 31, 2001 |
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|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||
Current assets |
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| Cash and cash equivalents | $ | 39.0 | $ | 47.7 | |||||
| Accounts and other receivables, net | 113.2 | 101.5 | |||||||
| Inventories, net | 84.4 | 86.6 | |||||||
| Deferred income taxes | 22.9 | 18.2 | |||||||
| Prepaid expenses and other current assets | 37.8 | 38.9 | |||||||
| Total current assets | 297.3 | 292.9 | |||||||
| Property, plant and equipment, net | 180.1 | 178.3 | |||||||
| Investments in unconsolidated affiliates | 20.8 | 92.9 | |||||||
| Goodwill | 333.8 | 333.8 | |||||||
| Other intangible assets, net | 62.5 | 68.4 | |||||||
| Other assets | 23.9 | 7.1 | |||||||
| $ | 918.4 | $ | 973.4 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current liabilities |
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| Accounts payable and accrued liabilities | $ | 175.0 | $ | 181.5 | |||||
| Short-term debt | — | 1.1 | |||||||
| Total current liabilities | 175.0 | 182.6 | |||||||
| Long-term debt | 279.9 | 309.8 | |||||||
| Other liabilities | 4.7 | 22.3 | |||||||
| Commitments and contingent liabilities | |||||||||
Stockholders' equity |
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| Common stock, $1.00 par value, 350,000,000 shares authorized, 59,974,669 and 59,327,872 shares outstanding | 60.0 | 59.3 | |||||||
| Additional contributed capital | 298.1 | 287.2 | |||||||
| Retained earnings | 121.7 | 87.7 | |||||||
| Accumulated other comprehensive income | 8.1 | 25.2 | |||||||
| Common stock in treasury, at cost | (29.1 | ) | (0.7 | ) | |||||
| Total stockholders' equity | 458.8 | 458.7 | |||||||
| $ | 918.4 | $ | 973.4 | ||||||
The accompanying notes are an integral part of these consolidated
condensed financial statements.
1
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share information)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2002 |
2001 |
2002 |
2001 |
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| Net sales | $ | 165.8 | $ | 147.8 | $ | 500.9 | $ | 532.1 | |||||||
| Cost of goods sold | 69.9 | 64.4 | 213.4 | 255.8 | |||||||||||
| Gross profit | 95.9 | 83.4 | 287.5 | 276.3 | |||||||||||
| Selling, general and administrative expenses | 54.2 | 46.4 | 159.2 | 152.9 | |||||||||||
| Research and development expenses | 15.5 | 14.0 | 47.5 | 40.6 | |||||||||||
| Goodwill amortization | — | 3.6 | — | 15.0 | |||||||||||
| Disposition of assets and other non-recurring charges | 67.4 | — | 67.4 | 83.0 | |||||||||||
| Non-recurring spin-off expenses | 3.3 | — | 3.3 | — | |||||||||||
| Other operating income | (3.6 | ) | (3.9 | ) | (11.0 | ) | (12.2 | ) | |||||||
| Operating income (loss) | (40.9 | ) | 23.3 | 21.1 | (3.0 | ) | |||||||||
| Interest expense, net | 2.7 | 3.2 | 8.5 | 19.6 | |||||||||||
| Other (income) expense, net | 1.6 | 0.2 | (14.1 | ) | 9.2 | ||||||||||
| Income (loss) before provision for income taxes | (45.2 | ) | 19.9 | 26.7 | (31.8 | ) | |||||||||
| Provision (benefit) for income taxes | (27.8 | ) | 5.4 | (7.3 | ) | (4.8 | ) | ||||||||
| Income (loss) before cumulative effect of change in accounting principle | (17.4 | ) | 14.5 | 34.0 | (27.0 | ) | |||||||||
| Cumulative effect of change in accounting principle, net of tax | — | — | — | (1.5 | ) | ||||||||||
| Net income (loss) | $ | (17.4 | ) | $ | 14.5 | $ | 34.0 | $ | (28.5 | ) | |||||
| Share information: | |||||||||||||||
| Earnings per basic share | |||||||||||||||
| Income (loss) before cumulative effect of change in accounting principle | $ | (0.30 | ) | $ | 0.25 | $ | 0.58 | $ | (0.46 | ) | |||||
| Cumulative effect of change in accounting principle | $ | — | $ | — | $ | — | $ | (0.03 | ) | ||||||
| Net income (loss) | $ | (0.30 | ) | $ | 0.25 | $ | 0.58 | $ | (0.49 | ) | |||||
| Earnings per diluted share | |||||||||||||||
| Income (loss) before cumulative effect of change in accounting principle | $ | (0.30 | ) | $ | 0.24 | $ | 0.55 | $ | (0.46 | ) | |||||
| Cumulative effect of change in accounting principle | $ | — | $ | — | $ | — | $ | (0.03 | ) | ||||||
| Net income (loss) | $ | (0.30 | ) | $ | 0.24 | $ | 0.55 | $ | (0.49 | ) | |||||
| Weighted average number of common shares outstanding | |||||||||||||||
| Basic | 58.7 | 59.0 | 59.1 | 58.8 | |||||||||||
| Diluted | 58.7 | 61.4 | 61.3 | 58.8 | |||||||||||
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
EDWARDS LIFESCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
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Nine Months Ended September 30, |
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|---|---|---|---|---|---|---|---|---|---|
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2002 |
2001 |
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| Cash flows from operating activities | |||||||||
| Net income (loss) | $ | 34.0 | $ | (28.5 | ) | ||||
| Income charges (credits) not affecting cash | |||||||||
| Disposition and write-down of assets and other non-recurring charges | 70.2 | 89.4 | |||||||
| Deferred income taxes | (35.6 | ) | (9.3 | ) | |||||
| Depreciation and amortization | 29.4 | 44.4 | |||||||
| Cumulative effect of change in accounting principle | — | 1.5 | |||||||
| Other | 2.2 | (6.8 | ) | ||||||
| Changes in operating assets and liabilities | |||||||||
| Accounts and other receivables | (11.4 | ) | (7.8 | ) | |||||
| Inventories | 2.4 | (3.5 | ) | ||||||
| Accounts payable and accrued liabilities | (14.2 | ) | (28.8 | ) | |||||
| Other | (3.6 | ) | 6.5 | ||||||
| Net cash provided by operating activities | 73.4 | 57.1 | |||||||
Cash flows from investing activities |
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| Capital expenditures | (24.9 | ) | (28.1 | ) | |||||
| Proceeds from asset dispositions | 2.9 | 7.3 | |||||||
| Investments in intangible assets | (4.8 | ) | (2.6 | ) | |||||
| Proceeds from sale of business | — | 45.0 | |||||||
| Investments in unconsolidated affiliates | (1.9 | ) | (9.0 | ) | |||||
| Net cash (used in) provided by investing activities | (28.7 | ) | 12.6 | ||||||
Cash flows from financing activities |
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| Proceeds from issuance of short-term debt | 0.4 | 25.3 | |||||||
| Payments on short-term debt | (1.4 | ) | (86.3 | ) | |||||
| Proceeds from issuance of long-term debt | 66.9 | 145.1 | |||||||
| Payments on long-term debt | (108.7 | ) | (166.7 | ) | |||||
| Proceeds from stock plans | 10.8 | 6.5 | |||||||
| Purchases of treasury stock | (28.5 | ) | — | ||||||
| Net proceeds from accounts receivable securitization | (0.8 | ) | 1.4 | ||||||
| Debt issuance costs | (0.3 | ) | (0.7 | ) | |||||
| Net cash used in financing activities | (61.6 | ) | (75.4 | ) | |||||
| Effect of currency exchange rate changes on cash | 8.2 | 1.1 | |||||||
| Net decrease in cash and cash equivalents | (8.7 | ) | (4.6 | ) | |||||
| Cash and cash equivalents at beginning of period | 47.7 | 28.1 | |||||||
| Cash and cash equivalents at end of period | $ | 39.0 | $ | 23.5 | |||||
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
Edwards Lifesciences Corporation
Notes to Consolidated Condensed Financial Statements
September 30, 2002
(unaudited)
1. DESCRIPTION OF BUSINESS
Edwards Lifesciences Corporation ("Edwards Lifesciences" or the "Company") is a global provider of products and technologies that are designed to treat advanced cardiovascular disease. Edwards Lifesciences' sales are categorized in four main product areas: cardiac surgery, critical care, vascular and perfusion. Edwards Lifesciences' cardiac surgery portfolio is comprised of products relating to heart valve therapy and other products used during open-heart surgery. In the critical care area, Edwards Lifesciences is a world leader in hemodynamic monitoring systems that are used to measure a patient's heart function, and also provides central venous access products for fluid and drug delivery. Edwards Lifesciences' vascular portfolio includes a line of balloon catheter-based products, surgical clips and inserts, angioscopy equipment, and artificial implantable grafts, as well as an endovascular system used to treat life-threatening abdominal aortic aneurysms less invasively. In the perfusion category, Edwards Lifesciences designs, develops, manufactures and markets in regions outside of the United States and Western Europe a diverse line of disposable products used during cardiopulmonary bypass procedures, including oxygenators, blood containers, filters and related devices. Effective June 30, 2001, the Company sold its perfusion services business in the United States to an affiliate of Fresenius Medical Care AG. The Company continues to maintain its perfusion services business in Europe.
2. FINANCIAL INFORMATION
These interim consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with the consolidated financial statements and notes included in the Company's Form 10-K for the year ended December 31, 2001. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Certain reclassifications of previously reported amounts have been made to conform to classifications used in the current period.
In the opinion of management, the interim consolidated condensed financial statements reflect all adjustments considered necessary for a fair presentation of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.
3. DISPOSITION OF ASSETS AND OTHER NON-RECURRING CHARGES
As previously announced, during the quarter ended September 30, 2002, the Company recorded a $67.4 million pretax charge related to the impairment of its investment in preferred stock of World Heart Corporation ("WorldHeart"). The investment was written down to $6.2 million, which represents the value of the Company's preferred stock investment had it been converted into common stock at October 15, 2002. The decision to record the charge was based primarily on delays in WorldHeart's product development timelines, arising from its revised strategy.
4
4. ACQUISITION OF JOINT VENTURE IN JAPAN
On October 1, 2002 the Company completed its spin-off from Baxter International Inc. by acquiring for approximately $22 million, net the cardiovascular business in Japan, which it had been operating as a joint venture with Baxter International Inc. The purchase price, which is expected to be reduced pending a final audit of the business' net assets, excludes approximately $30 million of securitized accounts receivable. In the three months ended September 30, 2002, the Company recorded a $3.3 million charge for legal, administrative and regulatory expenses related to the acquisition. Commencing October 1, 2002 the Company will report the results of the Japan business on a fully consolidated basis. Previously, the Company recognized its shipments into the joint venture as sales, at distributor price, at the time the joint venture sold to the end customer, and utilized the equity method of accounting to record its 90% profit interest in the operations of the joint venture in Other Operating Income. The acquisition will not materially impact the Company's net income as the terms of the joint venture agreement enabled Edwards to record substantially all of the net profit generated by the Japan business.
The following unaudited pro forma balance sheet and statements of operations present the results of Edwards Lifesciences assuming that the acquisition of the Japanese business had been completed as of January 1, 2001.
5
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2002
(unaudited) (in millions)
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Pro forma Adjustments |
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Historical |
Acquire Net Assets (a) |
Other |
Pro Forma |
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| Current assets | |||||||||||||||
| Cash and cash equivalents | $ | 39.0 | $ | 4.1 | $ | 0.5 | $ | 43.6 | |||||||
| Accounts and other receivables, net | 113.2 | 17.9 | (14.8 | )(c) | 116.3 | ||||||||||
| Inventories, net | 84.4 | 35.7 | — | 120.1 | |||||||||||
| Deferred income taxes | 22.9 | — | — | 22.9 | |||||||||||
| Prepaid expenses and other current assets | 37.8 | 0.8 | — | 38.6 | |||||||||||
| Total current assets | 297.3 | 58.5 | (14.3 | ) | 341.5 | ||||||||||
| Property, plant and equipment, net | 180.1 | 12.0 | — | 192.1 | |||||||||||
| Investments in unconsolidated affiliates | 20.8 | — | — | 20.8 | |||||||||||
| Goodwill | 333.8 | — | — | 333.8 | |||||||||||
| Other intangible assets, net | 62.5 | — | — | 62.5 | |||||||||||
| Other assets | 23.9 | 56.0 | (b) | — | 79.9 | ||||||||||
| $ | 918.4 | $ | 126.5 | $ | (14.3 | ) | $ | 1,030.6 | |||||||
Current liabilities |
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| Accounts payable and accrued liabilities | $ | 175.0 | $ | 32.4 | $ | (14.8 | )(c) | $ | 192.6 | ||||||
| Long-term debt | 279.9 | — | 20.4 | (d) | 300.3 | ||||||||||
| Other liabilities | 4.7 | 5.8 | — | 10.5 | |||||||||||
Stockholders' equity |
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| Common stock | 60.0 | — | — | 60.0 | |||||||||||
| Additional contributed capital | 298.1 | 135.3 | (19.9 | ) | 413.5 | ||||||||||
| Retained earnings | 121.7 | (0.6 | ) | — | 121.1 | ||||||||||
| Accumulated other comprehensive income | 8.1 | (46.4 | ) | — | (38.3 | ) | |||||||||
| Common stock in treasury, at cost | (29.1 | ) | — | — | (29.1 | ) | |||||||||
| Total stockholders' equity | 458.8 | 88.3 | (19.9 | ) | 527.2 | ||||||||||
| $ | 918.4 | $ | 126.5 | $ | (14.3 | ) | $ | 1,030.6 | |||||||
6
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(unaudited) (in millions, except per share information)
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Pro Forma Adjustments |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Historical |
Japan Operating Results (a) |
Other (e) |
Pro Forma |
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| Net sales | $ | 500.9 | $ | 77.2 | $ | — | $ | 578.1 | ||||||
| Cost of goods sold | 213.4 | 31.0 | — | 244.4 | ||||||||||
| Gross profit | 287.5 | 46.2 | — | 333.7 | ||||||||||
| Selling, general and administrative expenses | 159.2 | 34.0 | — | 193.2 | ||||||||||
| Research and development expenses | 47.5 | 2.5 | — | 50.0 | ||||||||||
| Disposition of assets and other non-recurring charges, net | 67.4 | — | — | 67.4 | ||||||||||
| Non-recurring spin-off expenses | 3.3 | — | — | 3.3 | ||||||||||
| Other operating income | (11.0 | ) | 11.0 | — | — | |||||||||
| Operating income (loss) | 21.1 | (1.3 | ) | — | 19.8 | |||||||||
| Interest expense, net | 8.5 | — | 0.8 | 9.3 | ||||||||||
| Other expense, net | (14.1 | ) | (1.5 | ) | — | (15.6 | ) | |||||||
| Income (loss) before provision for income taxes | 26.7 | 0.2 | (0.8 | ) | 26.1 | |||||||||
| Provision (benefit) for income taxes | (7.3 | ) | 0.1 | (0.2 | ) | (7.4 | ) | |||||||
| Net income (loss) | $ | 34.0 | $ | 0.1 | $ | (0.6 | ) | $ | 33.5 | |||||
Share information: |
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| Earnings per basic share | $ | 0.58 | $ | 0.56 | ||||||||||
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