1
EXHIBIT 99.1
TARGET THERAPEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
WITH
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Target Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of Target
Therapeutics, Inc. as of March 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended March 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Target
Therapeutics, Inc. at March 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Palo Alto, California
April 26, 1995
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TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
------
March 31,
-------------------------
1995 1994
------- -------
Current assets:
Cash, cash equivalents and short-term investments $38,070 $37,673
Accounts receivable 9,442 6,426
Inventories 5,423 2,987
Deferred tax assets 4,014 2,094
Other current assets 424 289
------- -------
Total current assets 57,373 49,469
Property and equipment, net 6,502 4,688
Other assets 6,524 2,973
------- -------
$70,399 $57,130
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 1,646 $ 1,454
Accrued compensation 3,361 2,152
Taxes payable 1,480 672
Accrued product replacement costs 1,030 1,141
Other accrued liabilities 3,506 1,925
Deferred tax liabilities 1,398 598
------- -------
Total current liabilities 12,421 7,942
Long-term obligations 115 124
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value (shares authorized: 2,000,000;
issued and outstanding: none) --- ---
Common stock, $.0025 par value (shares authorized: 25,000,000;
issued and outstanding: 7,098,619 and 7,024,619 at March 31,
1995 and 1994, respectively) 18 18
Additional paid-in capital 41,857 40,593
Deferred compensation --- (124)
Retained earnings 15,986 8,608
Accumulated translation adjustments 35 ---
Notes receivable from stockholders (33) (31)
------- -------
Total stockholders' equity 57,863 49,064
------- -------
$70,399 $57,130
======= =======
The accompanying notes are an integral part of these financial statements.
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TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year ended March 31,
------------------------------------------
1995 1994 1993
------- ------- -------
Product sales $47,508 $35,353 $28,117
Costs and expenses:
Cost of sales 15,151 13,368 9,657
Research and development 10,336 7,624 6,496
Selling, general and administrative 13,556 9,245 7,543
------- ------- -------
Total costs and expenses 39,043 30,237 23,696
------- ------- -------
Income from operations 8,465 5,116 4,421
Interest income, net 1,271 954 890
Other income 792 515 16
------- ------- -------
Income before income taxes and cumulative effect of
change in method of accounting for income taxes 10,528 6,585 5,327
Provision for income taxes 3,150 2,265 1,747
------- ------- -------
Income before cumulative effect of accounting change 7,378 4,320 3,580
Cumulative effect of change in method of accounting
for income taxes --- 631 ---
------- ------- -------
Net income $ 7,378 $ 4,951 $ 3,580
======= ======= =======
Income per share:
Income before cumulative effect of accounting change $ 1.02 $ .61 $ .51
Cumulative effect of change in method of accounting
for income taxes --- .09 ---
------- ------- -------
Net income per share $ 1.02 $ .70 $ .51
======= ======= =======
Shares used in calculating per share information 7,233 7,103 7,075
======= ======= =======
The accompanying notes are an integral part of these financial statements.
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TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Notes
Accumulated Receivable Total
Additional Deferred translation from stock-
Common paid-in compen- Retained adjust- stock- holders'
stock capital sation earnings ments holders equity
------ ---------- -------- -------- ----------- ---------- --------
Balances at March 31, 1992 $17 $38,253 $(340) $ 77 $--- $(24) $37,983
Exercise of common stock
options (190,195 shares), net
of notes receivable --- 101 --- --- --- 24 125
Amortization of deferred
compensation --- --- 108 --- --- --- 108
Income tax benefit of
disqualifying dispositions --- 666 --- --- --- --- 666
Net income --- --- --- 3,580 --- --- 3,580
--- ------- ----- ------- ---- ---- -------
Balances at March 31, 1993 17 39,020 (232) 3,657 --- --- 42,462
Exercise of common stock
options and issuance under
stock purchase plan (268,264
shares), net of notes
receivable 1 687 --- --- --- (31) 657
Amortization of deferred
compensation --- --- 108 --- --- --- 108
Income tax benefit of
disqualifying dispositions --- 886 --- --- --- --- 886
Net income --- --- --- 4,951 --- --- 4,951
--- ------- ----- ------- ---- ---- -------
Balances at March 31, 1994 18 40,593 (124) 8,608 --- (31) 49,064
Exercise of common stock
options and issuance under
stock purchase plan (74,000
shares), net of notes
receivable --- 1,038 --- --- --- (2) 1,036
Amortization of deferred
compensation --- --- 124 --- --- --- 124
Income tax benefit of
disqualifying dispositions --- 226 --- --- --- --- 226
Translation adjustments --- --- --- --- 35 --- 35
Net income --- --- --- 7,378 --- --- 7,378
--- ------- ----- ------- ---- ---- -------
Balances at March 31, 1995 $18 $41,857 $ --- $15,986 $ 35 $(33) $57,863
=== ======= ===== ======= ==== ==== =======
The accompanying notes are an integral part of these financial statements.
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TARGET THERAPEUTICS, INC.
----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended March 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from operating activities:
Net income $ 7,378 $ 4,951 $ 3,580
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 2,393 1,524 1,135
Changes in assets and liabilities:
Accounts receivable (2,882) (501) (1,826)
Inventories (2,432) 606 (1,247)
Deferred tax assets (1,920) (2,094) ---
Other current assets (135) 289 117
Accounts payable 194 584 (188)
Accrued compensation 1,210 381 567
Taxes payable 815 661 544
Accrued product replacement costs (111) 1,141 ---
Other accrued liabilities 1,630 384 (158)
Deferred tax liabilities 800 598 ---
Payable to Collagen Corporation --- --- (180)
Accrued facility lease costs --- --- (330)
Income tax benefit of disqualifying dispositions 226 886 666
-------- -------- --------
Total adjustments (212) 4,459 (900)
-------- -------- --------
Net cash provided by operating activities 7,166 9,410 2,680
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures, net (3,624) (1,938) (2,205)
Purchase of securities available-for-sale (68,967) (65,266) (95,371)
Maturities of securities available-for-sale 66,615 62,782 81,831
Increase in other assets (4,010) (1,895) (515)
-------- -------- --------
Net cash used in investing activities (9,986) (6,317) (16,260)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock for cash 1,036 657 101
Principal payments under capital leases (56) (48) (42)
Decrease in notes receivable from stockholders --- --- 24
-------- -------- --------
Net cash provided by financing activities 980 609 83
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,840) 3,702 (13,497)
Cash and cash equivalents, beginning of year 8,679 4,977 18,474
-------- -------- --------
Cash and cash equivalents, end of year $ 6,839 $ 8,679 $ 4,977
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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TARGET THERAPEUTICS, INC.
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business Target Therapeutics, Inc. (the "Company" or
"Target") was incorporated in California in June 1985 and
reincorporated in the State of Delaware in January 1992. The Company
is in the business of developing, manufacturing and marketing
disposable medical devices used in minimally invasive procedures to
treat vascular diseases of the brain associated with stroke and other
diseases accessible through small vessels of the circulatory system.
Principles of consolidation The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated. Investments in jointly owned companies and other
investments in which the Company has a 20 to 50 percent interest are
accounted for on the equity method.
Translation of foreign currencies All assets and liabilities of
the Company's foreign subsidiary are translated at exchange rates in
effect on reporting dates and differences due to changing translation
rates are charged or credited to "cumulative translation adjustment"
in stockholders' equity. Income and expenses are translated at rates
which approximate those in effect during the respective periods.
Cash equivalents and short-term investments Cash equivalents
consist of highly liquid investments, primarily money market accounts,
with maturities at the date of purchase of 90 days or less. Short-term
investments consist primarily of government debt securities and money
auction preferred stock.
Effective April 1, 1994, the Company adopted Financial Accounting
Standards Board ("FASB") Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities." Short-term investments
are classified as available-for-sale and are stated at fair market
value. In accordance with Statement 115 prior period financial
statements have not been restated to reflect the change in accounting
principle. The impact of adopting the Statement was not material. The
Company has no unrealized gains or losses to be recorded as a separate
component of stockholders' equity and includes in current period
earnings any decline in fair value below cost that is deemed other
than temporary.
Concentration of credit risk The Company sells its products
primarily to hospitals in North America and to medical device
distributors in Europe and Asia. The Company performs ongoing credit
evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit
losses. See Note 8 for discussion of export sales and major customers.
The Company invests its excess cash in deposits, government debt
securities and corporate debt securities. These securities typically
mature within 365 days and, therefore, bear minimal risk. The Company
has not experienced any material losses on its investments.
Inventories Inventories are stated at the lower of cost or market.
Cost is determined using standard costs, which approximate actual
costs, under the first-in, first-out method.
Property and equipment Property and equipment are stated at cost,
net of accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives of the respective assets, ranging from three to
five years. Leasehold improvements are amortized on a straight-line
basis over five years or the remaining lease term, whichever is
shorter.
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Patents and trademarks Patents and trademarks are stated at cost,
net of accumulated amortization. Amortization is provided using the
straight-line method over an estimated seven-year useful life
beginning with the effective dates or over the remainder of such
periods from the dates acquired.
Revenue recognition Product sales are recognized upon shipment.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes Effective April 1, 1993, the Company adopted FASB
Statement 109, "Accounting for Income Taxes," under which the
liability method is used in accounting for income taxes. As permitted
by Statement 109, the Company elected to report the cumulative effect
of the change in the year adopted rather than restate the financial
statements of prior years. The cumulative positive effect of the
change in method of accounting for income taxes increased net income
by $631,000, or $.09 per share, for the year ended March 31, 1994.
Net income per share Net income per share is computed using the
weighted average number of common and dilutive common equivalent
shares outstanding.
2. BALANCE SHEET INFORMATION
(In thousands) March 31,
------------------------
1995 1994
------- -------
Cash, cash equivalents and short-term investments:
Cash and cash equivalents $ 6,839 $ 8,679
Short-term investments 31,231 28,994
------- -------
$38,070 $37,673
======= =======
Accounts receivable:
Trade receivables $ 9,990 $ 6,840
Less allowance for doubtful accounts (548) (414)
------- -------
$ 9,442 $ 6,426
======= =======
Inventories:
Raw materials $ 781 $ 531
Work-in-process 1,037 1,152
Finished goods 3,605 1,304
------- -------
$ 5,423 $ 2,987
======= =======
Property and equipment:
Machinery and equipment $ 7,159 $ 5,275
Office equipment 3,795 2,495
Leasehold improvements 935 495
------- -------
11,889 8,265
Less accumulated depreciation and amortization (5,387) (3,577)
------- -------
$ 6,502 $ 4,688
======= =======
Other assets:
Cost in excess of net assets acquired, net $ 2,009 $ ---
Patents and trademarks, net 1,846 1,152
Investments in entities accounted for on the equity method 1,508 952
Other 1,161 869
------- -------
$ 6,524 $ 2,973
======= =======
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3. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities as of
March 31, 1995 (in thousands):
Gross Gross
unrealized unrealized Estimated
Cost gains losses fair value
------- ---------- ------ ----------
Money auction preferred stock $ 7,700 $ -- $ -- $ 7,700
Government debt securities 23,640 16 (131) 23,525
------- ---- ----- -------
Total debt securities 31,340 16 (131) 31,225
Equity securities 6 -- -- 6
------- ---- ----- -------
$31,346 $16 $(131) $31,231
======= ==== ===== =======
The gross realized gains, gross realized losses and the net
adjustment to unrealized holding gains (losses) on maturities of
available-for-sale securities were not significant. The amortized
cost and estimated fair value of debt and marketable equity
securities at March 31, 1995, are shown below (in thousands).
Amortized Estimated
cost fair value
--------- ----------
Due in one year or less $27,840 $27,766
Due after one year through three years 3,500 3,459
------- -------
31,340 31,225
Equity securities 6 6
------- -------
$31,346 $31,231
======= =======
4. COMMITMENTS
Line of credit arrangement
The Company maintains a $3.0 million bank line of credit which expires
in July 1996. Borrowings under the line of credit bear interest at the
bank's prime rate, are unsecured and are subject to certain covenants
related to financial ratios and profits. There were no amounts
outstanding under this line at March 31, 1995.
Lease obligations
The Company leases its facilities and certain equipment under
operating leases. The Company recognizes rent expense on a straight-
line basis over the lease term. The future minimum lease commitments
by fiscal year as of March 31, 1995 are as follows (in thousands):
1996 $ 873
1997 873
1998 877
1999 872
2000 868
Thereafter 1,592
------
$5,955
======
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The following schedule shows the composition of net rental expense for
all operating leases (in thousands):
Year ended March 31,
---------------------------------------
1995 1994 1993
---- ---- ------
Rent expense $848 $914 $1,146
Less sublease rental income -- (77) (88)
---- ---- ------
$848 $837 $1,058
==== ==== ======
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5. STOCKHOLDERS' EQUITY
Stock option and purchase plan
The 1988 Stock Option Plan (the "Plan") is an incentive and
nonstatutory option plan providing for the issuance of common stock to
employees, officers, directors and consultants of the Company. At
March 31, 1995 the Company had reserved 2,200,000 shares of common
stock for issuance under the Plan. Options granted generally become
exercisable over a 48-month period. Under the Plan, the exercise price
of incentive stock options may not be less than 100 percent of the
fair market value at the date of grant, and the exercise price of
nonstatutory options must be at least 85 percent of the fair market
value at the date of grant. In the case of an option holder who owns
more than ten percent of the voting power of all outstanding stock,
the incentive option exercise price must be at least 110 percent of
fair market value and the option must be exercised, if at all, within
five years of the grant date.
The Company recorded deferred compensation expense for the difference
between the grant price and the deemed fair value for financial
statement presentation purposes of the Company's common stock for
certain options granted in fiscal 1992. Amortization of deferred
compensation was $124,000 in the year ended March 31, 1995 and
$108,000 in each of the years ended March 31, 1994 and 1993. The
deferred compensation amount was amortized over a four-year period.
Information with respect to the 1988 Stock Option Plan is summarized
as follows:
Options outstanding
Shares --------------------------------------------
available Number Aggregate Price
for grant of shares price per share
--------- --------- ----------- -----------
Balances at March 31, 1992 261,685 551,819 $945,492 $.13-11.50
Additional shares reserved 500,000 --- --- ---
Options granted (111,160) 111,160 2,227,063 17.75-26.75
Options exercised --- (190,195) (100,566) .13-17.75
Options canceled 14,673 (14,673) (134,309) .13-26.00
-------- -------- -----------
Balances at March 31, 1993 665,198 458,111 2,937,680 .13-26.75
Options granted (302,875) 302,875 6,035,300 17.25-24.25
Options exercised --- (252,113) (416,980) .13-25.63
Options canceled 28,514 (28,514) (425,976) .33-26.00
-------- -------- -----------
Balances at March 31, 1994 390,837 480,359 8,130,024 .13-26.75
Additional shares reserved 500,000 --- --- ---
Options granted (413,715) 413,715 10,084,991 21.44-36.25
Options exercised --- (57,062) (741,206) .13-26.75
Options canceled 29,727 (29,727) (601,990) .13-26.00
-------- -------- -----------
Balances at March 31, 1995 506,849 807,285 $16,871,819 $.13-36.25
======== ======== ===========
As of March 31, 1995, options for 232,738 shares were exercisable.
During fiscal 1995 the Company granted options to purchase up to
101,600 shares under the Plan that vest after six years or upon the
Company's achievement of certain market valuation criteria.
In December 1991, the Company's Board of Directors (the "Board")
adopted the 1991 Director Option Plan ("Director Option Plan"). A
total of 100,000 shares of common stock have been reserved for
issuance under the Director Option Plan which provides for the grant
of nonstatutory options to non employee directors of the Company. As
of March 31, 1995, options to purchase up to 42,000 shares under this
plan were outstanding and become exercisable over a three year period
from the grant date. As of March 31, 1995, options for 6,667 shares
were exercisable. No options under the Director Option Plan have been
exercised.
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The Board also adopted the 1991 Employee Stock Purchase Plan (the
"Purchase Plan") in December 1991. The Purchase Plan allows for the
issuance of up to 100,000 shares of common stock to employees of the
Company. During the years ended March 31, 1995 and 1994, 16,938 shares
and 16,151 shares, respectively, were issued at prices of $15.09 and
$20.83 per share and $15.09 and $18.70 per share, respectively, under
the Purchase Plan.
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6. INCOME TAXES
The Company's provision for income taxes for the years ended March 31,
1995 and 1994 (under the liability method) and 1993 (under the
deferred method) consists of the following (in thousands):
Year ended March 31,
-----------------------------------------
1995 1994 1993
------ ------ ------
Current:
Federal $3,613 $2,353 $1,374
State 657 674 466
------ ------ ------
Total current 4,270 3,027 1,840
Deferred:
Federal (992) (614) (101)
State (128) (148) 8
------ ------ ------
Total deferred (1,120) (762) (93)
------ ------ ------
Total provision $3,150 $2,265 $1,747
====== ====== ======
At March 31, 1995, the Company had available net operating loss
carryforwards for tax purposes of approximately $1.1 million which
expire in the year 2001. Because of the "change in ownership"
provisions of the Tax Reform Act of 1986, the loss carryforwards will
be subject to an annual limitation regarding their utilization against
future taxable income.
The Company realizes tax benefits as a result of the exercise and
subsequent sale of certain employee stock options (disqualifying
dispositions). For financial reporting purposes, any reduction in
income tax obligations as a result of these tax benefits, $226,000,
$886,000 and $666,000 in fiscal 1995, 1994 and 1993, respectively, is
credited to additional paid-in capital.
The provision for income taxes for the years ended March 31, 1995,
1994 and 1993 differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The
reconciliation between the federal statutory rate and the effective
tax rate is as follows:
Year ended March 31,
---------------------------------------
1995 1994 1993
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
Foreign tax credits (5.7) --- ---
Unrealized losses on investments accounted
for on the equity method 3.6 1.5 ---
Foreign sales corporation tax benefit (3.5) (3.7) (3.3)
State income taxes 3.7 5.3 5.9
Tax exempt interest (3.0) (2.6) (2.9)
Other 0.8 (0.1) (0.9)
---- ---- ----
Provision for income taxes 29.9% 34.4% 32.8%
==== ==== ====
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6. INCOME TAXES (continued)
Deferred taxes for the years ended March 31, 1995 and 1994 reflect the
net tax effects of loss carryforwards and temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant amounts of the Company's deferred tax assets and
liabilities as of March 31, 1995 and 1994 are as follows (in
thousands):
March 31,
------------------------
1995 1994
------ ------
Deferred tax assets:
Inventory valuation accounts $ 461 $ 382
Reserves and accruals not currently tax deductible 1,152 861
Foreign tax credits 1,605 ---
Benefit of net operating loss carryforwards 490 546
Accrued cost of exchanging GDC inventory 414 578
State income taxes 174 159
Other 152 58
------ ------
4,448 2,584
Valuation allowance (434) (490)
------ ------
$4,014 $2,094
====== ======
Deferred tax liabilities:
Patent costs $ 580 $ 328
Depreciation and amortization 64 128
Unrealized gains and dividend income related to investments
accounted for on the equity method 700 142
Other 54 --
------ ------
$1,398 $ 598
====== ======
The valuation allowance decreased by $56,000 from March 31, 1994 to
March 31, 1995. The components of the credit for deferred income taxes
for the year ended March 31, 1993 under the deferred method are as
follows (in thousands):
Year ended March 31,
--------------------
1993
-----
Depreciation $ 98
Accounts receivable and sales return reserves (51)
Patent expenses 132
Accrued vacation and commissions (44)
State income taxes (129)
Inventory valuation (80)
Accrued expenses (49)
Other 30
-----
Total deferred provision $ (93)
=====
7. JOINT VENTURE AND AFFILIATE COMPANIES
In September 1991, the Company entered into a joint venture agreement
with Century Medical Inc. ("CMI"), a Japanese corporation, to
distribute the Company's products in Japan. The Company accounts for
this 50 percent-owned investment on the equity method and includes its
share of joint venture net income in "Other income" in the
Consolidated Statements of Income. These amounts were $1.6 million and
$520,000 in fiscal 1995 and 1994, respectively. In conjunction with
establishing the joint venture, the Company also entered into a
distribution agreement with CMI, and CMI entered into a
subdistribution agreement with the joint venture.
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The Company entered into an agreement with the joint venture,
effective in January 1994, in which the Company is obligated to
provide certain management services, assist in marketing, development
and planning activities and provide certain literature to the joint
venture. In consideration for the Company providing such services, the
joint venture has agreed to reimburse costs incurred by the Company,
of which $318,000 and $445,000 have been included in "Other income"
for the years ended March 31, 1995 and 1994, respectively.
Summarized information for the joint venture is as follows (in
thousands):
March 31,
-------------------------
1995 1994
------- ------
Current assets $18,540 $8,932
Non current assets 755 262
Current liabilities 13,604 7,528
Non current liabilities --- ---
Year ended March 31,
-------------------------
1995 1994
------- -------
Net sales $37,349 $22,894
Gross profit 15,243 8,896
Income from operations 6,837 2,876
Net income 3,213 1,038
The Company's other investments accounted for on the equity method,
comprised of cash investments and the granting of technology licenses,
are Cardima, Inc., Prograft Medical, Inc. and Conceptus, Inc. for
which the Company's ownership interest is approximately 30 percent, 20
percent and 20 percent, respectively. The equity losses for these
investments were $1.1 million and $292,000 for fiscal 1995 and 1994,
respectively.
8. EXPORT SALES AND MAJOR CUSTOMERS
The Company markets its products both domestically and
internationally. Export product sales are as follows (in thousands):
Year ended March 31,
------------------------------------------
1995 1994 1993
------- ------- -------
Europe $12,708 $ 8,651 $ 7,883
Asia 17,699 11,019 8,275
Other 2,152 1,469 1,086
------- ------- -------
$32,559 $21,139 $17,244
======= ======= =======
One customer accounted for approximately 35 percent, 29 percent and 27
percent of the Company's product sales for the years ended March 31,
1995, 1994 and 1993, respectively.
9. FORMATION OF GERMAN SUBSIDIARY
In October 1994, the Company and Target Therapeutics International
(Deutschland) GmbH ("Target GmbH") entered into an Asset Purchase
Agreement (the "Agreement") with Rehaforum Medical GmbH ("Rehaforum"),
a distributor of the Company's products in Germany. The Company and
Target GmbH acquired certain of the assets of Rehaforum attributable
to the Target portion of Rehaforum's business, including inventory of
Target products, property and equipment and assumed certain
liabilities. Pursuant to the terms of the Agreement, Rehaforum no
longer has distribution rights to the Company's products and is
limited as to sales of competitive products for a two year period.
The purchase price in excess of the fair value of net tangible assets
acquired is being amortized over a five year period.
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10. EXPECTED COSTS OF PRODUCT REPLACEMENT
In October 1993, the Company announced that it was pursuing certain
changes to a product currently sold under an investigational device
exemption ("IDE") by the U.S. Food and Drug Administration ("FDA").
Pursuant to a supplement to the IDE which was approved by the FDA in
March 1994, limited FDA clinical trials of the modified product were
commenced in April 1994. As treatment sites were converted to the
modified product, the Company exchanged such modified product for any
original product that customers still had in their inventory. The
Company provided $1.5 million, which was included in cost of sales in
fiscal 1994, for the estimated costs of such exchange including the
disposition of the Company's inventory of such product.
11. SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) Year ended March 31,
-----------------------------------------
1995 1994 1993
------ ------ ------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $3,785 $1,573 $1,195
Cash paid during the period for interest 24 17 19
Supplemental schedule of non cash investing and
financing activities:
Acquisition of assets under capital lease $ --- $ --- $ 32
Issuance of common stock options in exchange for a
note receivable --- 31 ---
12. RELATED PARTY TRANSACTIONS
In December 1993, the Company entered into a lease line agreement as
lessor with a less than 50 percent-owned affiliate. The maximum
available lease line of $1.0 million expired March 31, 1995 and
requires monthly payments to be made on the outstanding balance over
36 or 48 months with interest at approximately 8.5 percent per year.
As of March 31, 1995 and 1994 there was $521,000 and $143,000
outstanding, respectively, under this agreement.
In March 1994, the Company loaned approximately $200,000 to a less
than 50 percent-owned affiliate in exchange for promissory notes
bearing interest at 8.5 percent per year. Monthly payments are
required over 36 and 48 months. The Company also entered into a lease
line agreement as lessor with this affiliate in March 1994. The
maximum available lease line of $300,000 expired March 1, 1995 and
requires monthly payments to be made on the outstanding balance over
36 or 48 months with interest at approximately 8.5 percent per year.
At March 31, 1995 there was $288,000 outstanding under this agreement.
There were no amounts outstanding under this agreement at March 31,
1994.
13. LEGAL MATTERS
The Company is involved in legal actions, including product liability
claims and the protection of the Company's proprietary assets, arising
in the ordinary course of business. While the outcome of such matters
is currently not determinable, it is management's opinion that these
matters, both individually or in the aggregate, will not have a
material adverse effect on the Company's consolidated financial
position, results of its operations or cash flows.
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