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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarter period ended September 30, 1997
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: 0-10640
COLLAGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2300486
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State of Incorporation I.R.S. Employer Identification No.
2500 Faber Place, Palo Alto, California 94303
Telephone: (415) 856-0200
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of October 31, 1997, Registrant had outstanding 8,898,364 shares of common
stock, exclusive of 1,947,900 shares held by the Registrant as treasury stock.
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The undersigned registrant hereby amends Item 1. Financial Statements of Part I
of its Quarterly Report on Form 10-Q for the quarter ended September 30, 1997
as set forth below in order to correct a mathematical error on the registrant's
Consolidated Balance Sheets.
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COLLAGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
September 30, June 30,
1997 1997 *
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ASSETS
Current assets:
Cash and cash equivalents $ 16,162 $ 18,481
Short-term investments 7,792 5,117
Accounts receivable, net 12,701 10,759
Inventories, net 13,610 14,293
Other current assets, net 9,957 9,314
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Total current assets 60,222 57,964
Property and equipment, net 15,670 15,260
Intangible assets and goodwill, net 13,979 14,764
Investment in Boston Scientific Corporation 70,522 83,874
Other investments and assets, net 17,309 13,049
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$ 177,702 $ 184,911
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,620 $ 2,638
Other accrued liabilities 12,828 13,638
Income taxes payable 10,084 9,376
Notes payable 2,030 70
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Total current liabilities 26,562 25,722
Long-term liabilities:
Deferred income taxes 32,245 35,448
Other long-term liabilities 1,800 3,795
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Total long-term liabilities 34,045 39,243
Commitments and contingencies
Minority Interest 19 49
Stockholders' equity:
Preferred Stock, $.01 par value, authorized:
5,000,000 shares; none issued and outstanding -- --
Common stock, $.01 par value, authorized:
28,950,000 shares, issued: 10,770,304 shares
at September 30, 1997 (10,756,935 shares at
June 30, 1997), outstanding: 8,822,404 shares at
September 30, 1997 (8,809,035 shares at June 30, 1997 108 108
Additional paid-in capital 67,297 67,204
Retained earnings 50,009 47,999
Cumulative translation adjustment (2,002) (1,717)
Unrealized gain on available-for-sale investments 42,430 47,069
Treasury stock, at cost, 1,947,900 shares at
September 30, 1997 and June 30, 1997 (40,766) (40,766)
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Total stockholders' equity 117,076 119,897
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$ 177,702 $ 184,911
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* Amounts derived from audited financial statements at the date indicated.
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COLLAGEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
September 30,
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1997 1996
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Revenues:
Product Sales $ 20,402 $ 16,785
Costs and expenses:
Cost of sales 6,502 5,145
Selling, general and administrative 10,569 8,848
Research and development 5,726 4,162
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22,797 18,155
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Loss from operations (2,395) (1,370)
Other income (expense):
Net gain on investments, principally Boston Scientific
Corporation (Target Therapeutics, Inc. in fiscal 1997) 5,932 6,184
Equity in losses of affiliates, net (73) (474)
Interest income 301 354
Interest expense (25) (85)
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Income before income taxes and minority interest 3,740 4,609
Provision for income taxes 1,758 2,443
Minority interest (28) (141)
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Net income $ 2,010 $ 2,307
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Net income per share $ .23 $ .25
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Shares used in calculating per share information 8,901 9,086
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COLLAGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In thousands)
Three Months Ended
September 30,
--------------------
1997 1996
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Cash flows from operating activities:
Net income $ 2,010 $ 2,307
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,730 1,617
Equity in losses of affiliates 73 474
Gain on investments, net of taxes paid of $0 and $3.5 million
in fiscal 1998 and 1997, respectively (5,932) (2,702)
Other adjustments related to changes in
assets and liabilities (2,289) 1,560
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Net cash provided by (used in) operating activities (4,408) 3,256
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Cash flows from investing activities:
Proceeds from sale of Boston Scientific Corporation stock
(Target Therapeutics, Inc. in Fiscal 1997), net of taxes paid 6,216 3,767
Proceeds from sale of other affiliate stock 704 --
Proceeds from sales and maturities of short-term investments 2,650 500
Purchases of short-term investments (5,324) (2,865)
Expenditures for property and equipment (1,414) (1,704)
Increase in intangible and other assets -- (46)
Expenditures for investments in and loans to affiliates, net of repayments 44 (1,255)
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Net cash provided by (used in) investing activities 2,876 (1,603)
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Cash flows from financing activities:
Repurchase of common stock -- (2,547)
Net proceeds from issuance of common stock 94 524
Cash dividends paid (881) (885)
Repayment of bank loans -- (41)
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Net cash used in financing activities (787) (2,949)
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Net decrease in cash and cash equivalents (2,319) (1,296)
Cash and cash equivalents at beginning of period 18,481 21,676
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Cash and cash equivalents at end of period $ 16,162 $ 20,380
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COLLAGEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Collagen
Corporation (the "Company"), a Delaware corporation, and its wholly-owned
and majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company operates in one industry
segment focusing on the development, manufacturing, and sale of medical
devices. Investments in unconsolidated subsidiaries, and other investments
in which the Company has a 20% to 50% interest or otherwise has the ability
to exercise significant influence, are accounted for under the equity
method. Investments in companies in which the Company has less than 20%
interest with either no readily determinable fair value or with transfer
restrictions are carried at cost or estimated realizable value, if less, and
those unrestricted investments with a readily determinable fair value are
carried at market value with the unrealized gains or losses, net of tax, as
a component of stockholders' equity.
The consolidated balance sheet as of September 30, 1997, the consolidated
statements of income for the three months ended September 30, 1997 and 1996,
and the condensed consolidated statements of cash flows for the three months
ended September 30, 1997 and 1996, have been prepared by the Company,
without audit. In the opinion of management, all necessary adjustments
(which include only normal recurring adjustments) have been made to present
fairly the financial position, results of operations, and cash flows at
September 30, 1997 and for all periods presented. Interim results are not
necessarily indicative of results for a full fiscal year. The consolidated
balance sheet as of June 30, 1997 has been derived from the audited
consolidated financial statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1997.
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2. Inventories
Inventories consist of the following (in thousands):
September 30, June 30,
1997 1997
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Raw materials $ 1,231 $ 938
Work-in-process 6,604 7,188
Finished goods 5,775 6,167
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$13,610 $14,293
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3. Investment in Boston Scientific Corporation
The Company accounts for its investment in Boston Scientific Corporation
("Boston Scientific") as an available-for-sale equity security, which
accordingly is carried at market value. During the quarter ended September
30, 1997, the Company sold 87,340 shares of Boston Scientific common stock
for a pre-tax gain of approximately $5.9 million. Boston Scientific common
stock is quoted on the New York Stock Exchange under the symbol BSX. The
closing price of Boston Scientific common stock at September 30, 1997 was
$55.19 per share. At September 30, 1997, the Company held 1,277,860 shares
of Boston Scientific common stock and all holding restrictions resulting
from the acquisition of Target Therapeutics, Inc. by Boston Scientific that
were applicable at June 30, 1997, had expired. Pursuant to a hedging
strategy implemented by the Company in mid-August 1997, approximately half
of the Company's position in Boston Scientific is hedged, utilizing the
purchase of puts and calls in combination to minimize the downside risk of
loss should the price of Boston Scientific stock decline while allowing for
limited upside participation should the stock price rise. The call option is
collateralized by shares of Boston Scientific common stock held by the
Company.
At June 30, 1997 and September 30, 1997, the Company's shares of Boston
Scientific common stock were recorded at $83.9 and $70.5 million,
respectively. The $78.0 million unrealized gain ($83.9 million estimated
fair value less $5.9 million cost) at June 30, 1997 and the $65.0 million
unrealized gain ($70.5 million estimated fair value less $5.5 million cost)
at September 30, 1997, on these available-for-sale securities has been
reported as a separate component of stockholders' equity, net of tax.
4. Investment in Innovasive Devices, Inc.,
Prior to October 1996, the Company's 844,000 shares of common stock of
Innovasive Devices, Inc. ("Innovasive Devices") were valued at cost, or
$4,064,000, due to restrictions which prevented the sale of any of the
Company's shares of
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common stock of Innovasive Devices. At September 30, 1997, restrictions were
no longer applicable on 292,000 shares of common stock which the Company
holds in Innovasive Devices. As a result, the Company now carries the
non-restricted portion of its investment in Innovasive Devices as an
available-for-sale investment at market value, or $2.8 million, reflecting
an unrealized gain of $1.4 million, which has been included in a separate
component of stockholders' equity, net of tax. The remaining 552,000
restricted shares of common stock continue to be valued at cost.
During the three months ended September 30, 1997, the Company did not sell
any of its shares of common stock of Innovasive Devices. Innovasive Devices
common stock is quoted on The Nasdaq Stock Market under the symbol IDEA. The
closing price of Innovasive Devices common stock at September 30, 1997, was
$9.56 per share. At September 30, 1997, the Company held approximately a 9%
ownership position in Innovasive Devices.
5. Income Taxes
The provision for income taxes for the three months ended September 30, 1997
and 1996 was computed by applying the estimated annual income tax rates of
approximately 47% and 53%, respectively, to income before income taxes and
minority interest. The lower effective tax rate in the current year
primarily was due to the ability to utilize net operating loss carryforwards
in certain foreign subsidiaries as a result of these foreign subsidiaries
generating net income in the current year.
6. Per Share Information
Net income per share for the three months ended September 30, 1997 and 1996,
have been computed based upon the weighted average number of common stock
and dilutive common stock equivalent shares outstanding. Shares used in the
per share computations are as follows (in thousands):
Three Months Ended
September 30,
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1997 1996
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Primary:
Common stock 8,819 8,963
Stock options 82 123
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Weighted average number of common stock
and dilutive common stock equivalent shares
outstanding 8,901 9,086
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7. Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS#128"),
which is required to be adopted by December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect
of stock options will be excluded. The impact of SFAS#128 is expected to
result in no change to the Company's net income per share for the three
months ended September 30, 1997 compared to an increase of $0.01 per share
for the three months ended September 30, 1996. The Company does not expect
the impact on the calculation of the Company's fully diluted earnings per
share to be material.
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SIGNATURES
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.
COLLAGEN CORPORATION
Date: December 19, 1997 /s/ NORMAN HALLEEN
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Norman Halleen
Vice President Finance
Chief Financial Officer
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