SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 27, 1996 Commission File Number 0-16093
CONMED CORPORATION
(Exact name of the registrant as specified in its charter)
New York 16-0977505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Broad Street, Utica, New York 13501
(Address of principal executive offices) (Zip Code)
(315) 797-8375
(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 outstanding of registrant's common stock, as of
October 31, 1996 is 14,944,693 shares.
<PAGE>
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION
Item Number
Item 1. Financial Statements
- Consolidated Statements of Income
- Consolidated Balance Sheets
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
For the three months ended For the nine months ended
Sept. 29, Sept. 27, Sept. 29, Sept. 27,
-------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales..................... $26,258 $31,432 $71,886 $92,422
------- ------- ------- -------
Cost and expenses:
Cost of sales............... 13,737 16,469 37,960 48,141
Selling and administrative. 6,586 7,949 18,703 23,645
Research and development.... 781 861 2,115 2,238
------- ------- ------- -------
Total operating expenses.. 21,104 25,279 58,778 74,024
------- ------- ------- -------
Income from operations........ 5,154 6,153 13,108 18,398
Interest income (expense),net. (741) 148 (1,436) (384)
------- ------- ------- -------
Income before taxes........... 4,413 6,301 11,672 18,014
Provision for income taxes.... 1,524 2,268 4,125 6,485
------- ------- ------- -------
Net income.................... $ 2,889 $ 4,033 $ 7,547 $11,529
======= ======= ======= =======
Weighted common shares and
equivalents................. 12,168 15,195 11,396 14,285
======= ======= ======= =======
Earnings per share............ $ .24 $ .27 $ .66 $ .81
======= ======= ======= =======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
ASSETS
December 29, Sept. 27,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 1,539 $ 13,978
Accounts receivable, net......................... 22,649 26,181
Income taxes receivable.......................... 961 -
Inventories (Note 4)............................. 20,943 23,010
Deferred income tax assets....................... 2,678 678
Prepaid expenses and other current assets........ 476 1,071
-------- --------
Total current assets................ 49,246 64,918
Property, plant and equipment, net................. 19,728 29,925
Deferred income taxes.............................. 2,907 2,907
Covenant not to compete, net....................... 1,153 823
Goodwill, net...................................... 41,438 60,696
Patents, trademarks, and other assets, net......... 4,931 5,684
--------- --------
Total assets................................. $ 119,403 $164,953
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................ $ 6,000 $
Accounts payable................................. 2,351 2,126
Income taxes payable............................. - 400
Accrued payroll and withholdings................. 2,282 1,301
Accrued pension.................................. 274 112
Other current liabilities........................ 989 1,876
--------- --------
Total current liabilities.................... 11,896 5,815
Long-term debt..................................... 26,340 -
Deferred compensation.............................. 868 978
Accrued pension.................................... 276 276
Long term leases................................... 3,521 3,025
Other long-term liabilities........................ 1,500 1,491
--------- --------
Total liabilities.................... 44,401 11,585
--------- --------
<PAGE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
(continued)
December 29, Sept. 27,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized 500,000 shares; none outstanding.. - -
Common stock, par value $.01 per share;
20,000,000 and 40,000,000 authorized;
11,000,105 and 14,944,693 issued and
outstanding,in 1995 and 1996, respectively... 110 150
Paid-in capital.................................. 44,560 111,357
Retained earnings................................ 30,332 41,861
--------- --------
Total equity................................. 75,002 153,368
--------- --------
Total liabilities and shareholders' equity... $ 119,403 $164,953
========= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months ended
Sept. 29, Sept. 27,
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 7,547 $11,529
------- -------
Adjustments to reconcile net income
to net cash provided (used) by operations:
Depreciation................................. 1,895 2,979
Amortization............................ 1,454 2,269
Increase (decrease) in cash flows
from changes in assets and liabilities
Accounts receivable.................... (3,046) (958)
Inventories............................ (4,953) (2)
Prepaid expenses and other assets...... (339) (441)
Deferred income taxes.................. - 2,000
Patents, trademarks and other assets.. . 574 (1,334)
Accounts payable....................... (1,004) (225)
Income tax payable..................... (833) 1,361
Income tax benefit of stock
option exercises................... 989 1,035
Accrued payroll and withholdings....... (97) (981)
Accrued pension........................ (145) (162)
Accrued patent litigation costs........ (2,360) -
Other current liabilities.............. (371) 679
Other liabilities...................... 466 (570)
------- -------
(7,770) 5,650
Net cash provided (used) by operations (223) 17,179
------- -------
Cash flows from investing activities:
Business acquisitions............................ (9,500) (33,705)
Acquisition of property, plant, and equipment.... (3,805) (3,992)
------- -------
Net cash used by investing activities........ (13,305) (37,697)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net...... 1,931 65,802
Proceeds of long and short term debt............. 26,590 32,660
Payments on debt and other obligations........... (17,006) (65,505)
------- -------
Net cash provided by financing activities.... 11,515 32,957
------- -------
Net increase (decrease)in
cash and cash equivalents...................... (2,013) 12,439
Cash and cash equivalents at beginning of period. 3,615 1,539
------- -------
Cash and cash equivalents at end of period....... $ 1,602 $13,978
======= =======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Consolidation
The consolidated financial statements include the accounts of CONMED
Corporation ("the Company") and its subsidiaries. The Company is primarily
engaged in the development, manufacturing and marketing of disposable medical
products and related devices. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Note 2 - Interim financial information
The statements for the three and nine months ended September 29, 1995 and
September 27, 1996 are unaudited; in the opinion of the Company such unaudited
statements include all adjustments (which comprise only normal recurring
accruals) necessary for a fair presentation of the results for such periods. The
consolidated financial statements for the year ending December 27, 1996 are
subject to adjustment at the end of the year when they will be audited by
independent accountants. The results of operations for the three and nine months
ended September 29, 1995 and September 27, 1996 are not necessarily indicative
of the results of operations to be expected for any other quarter nor for the
year ending December 27, 1996. The consolidated financial statements and notes
thereto should be read in conjunction with the financial statements and notes
for the years ended December 30, 1994 and December 29, 1995 included in the
Company's Annual Report to the Securities and Exchange Commission on Form 10-K.
Note 3 - Earnings per share
Earnings per share was computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the quarter.
Note 4 - Inventories
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
December 29, September 27
1995 1996
---- ----
<S> <C> <C>
Raw materials............... $ 7,209 $ 7,729
Work-in-process............ 5,680 7,283
Finished goods.............. 8,054 7,998
------ --------
Total................. $ 20,943 $ 23,010
======== ========
</TABLE>
<PAGE>
Note 5 - Business acquisitions
On March 14, 1995, the Company acquired Birtcher Medical Systems,
Inc. ("Birtcher") through an exchange of the Company's common stock for all of
the outstanding common and preferred stock of Birtcher. In connection with this
transaction, the Company issued 1,590,000 shares of common stock valued at
$17,750,000 and assumed approximately $3,500,000 of net liabilities. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 40 year period.
On May 19, 1995, the Company acquired the business and certain
assets of the Master Medical Corporation ("Master Medical") for a cash purchase
price of approximately $9,500,000 and assumption of $500,000 of liabilities. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 15 year period.
On February 23, 1996, the Company acquired the business and
certain assets of New Dimensions in Medicine, Inc. ("NDM") for a cash purchase
price of approximately $31.2 million and the assumption of $2.7 million of
liabilities. The acquisition is being accounted for using the purchase method of
accounting. Accordingly, the results of operations of the acquired business are
included in the consolidated results of the Company from the date of
acquisition. Goodwill associated with the acquisition is being amortized on a
straight line basis over a 40 year period. The allocation of the purchase price
for this acquisition is based on management's preliminary estimates; it is
possible that re-allocations will be required during the next six months as
additional information becomes available. Management does not believe that such
re-allocations will have a material effect on the Company's results of
operations or financial position.
On an unaudited pro forma basis, assuming each of the
acquisitions had occurred as of the beginning of the periods, the consolidated
results of the Company would have been as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
For the Three
Months Ended For the Nine Months Ended
Sept.29, Sept.29, Sept.27,
1995 1995 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net sales ................ $ 31,450 $ 99,681 $94,922
======== ======== =======
Pro forma net income ............... $ 3,076 $ 10,141 $11,750
======== ======== =======
Pro forma earnings per
common, and common
equivalent shares .................. $ .25 $ .85 $ .82
======== ======== =======
</TABLE>
<PAGE>
Note 6 - Stock Split and Stock Offering
On October 31, 1995, the Board of Directors of the Company declared a
three-for-two split of the Company's common stock, to be effected in the form of
a stock dividend, payable on November 30, 1995 to shareholders of record on
November 13, 1995. Accordingly, common stock, retained earnings, earnings per
share, the number of shares outstanding, and the weighted average number of
shares and equivalents outstanding, have been restated to retroactively reflect
the split.
On March 20, 1996, the Company completed a public offering of its common
stock whereby 3,000,000 and 850,000 shares of common stock were sold by the
Company and certain shareholders, respectively. The common shares sold by the
shareholders were received upon the exercise of a warrant and options during the
first quarter of 1996. Net proceeds to the Company related to the sale of
3,000,000 shares and exercise of the warrant and options amounted to
approximately $62,500,000 and $3,500,000, respectively. Of the aggregate
proceeds, $65,000,000 was used to eliminate the Company's indebtedness under its
credit agreements.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended September 27, 1996 compared to three months ended September
29, 1995
Sales for the quarter ended September 27, 1996 were $31,432,000, an
increase of 19.7% compared to sales of $26,258,000 in the quarter ended
September 29, 1995. The increase is primarily a result of incremental sales
volume associated with the NDM acquisition which became effective February 23,
1996.
Cost of sales increased to $16,469,000 in the current quarter compared to
the $13,737,000 in the same quarter a year ago as a result of increased sales
volume. The Company's gross margin percentage was substantially the same in the
third quarter of 1996 as compared to 1995. The overall gross margin percentage
in the third quarter of 1996 was favorably impacted by economies of scale and
manufacturing efficiencies from the completed acquisitions, as well as the cost
savings resulting from the fourth quarter 1995 move of the Company's ECG
manufacturing facility from Haverhill, Massachusetts to Rome, New York. However,
offsetting these gains in gross margin percentage were the effects of slightly
lower pricing on ECG electrodes and the effects of the NDM product line which
generally have slightly lower gross margins percentages than the Company's
overall gross margin percentage.
Selling and administrative expenses increased to $7,949,000 in the third
quarter of 1996 as compared to $6,586,000 in the third quarter of 1995. This
increase resulted from the effects of the NDM acquisition. As a percentage of
sales, however, selling and administrative expense remained fairly constant in
the third quarters of 1996 and 1995 at 25%.
Research and development expense was $861,000 in the third quarter of
1996 as compared to $781,000 in the comparable 1995 period. This increase
reflects increased activity in the 1996 period related to development of
minimally-invasive surgical products.
The third quarter of 1996 had interest income of $148,000 compared to
interest expense of $741,000 in the third quarter of 1995. As discussed below
under Liquidity and Capital Resources, all of the Company indebtedness was
repaid in the first quarter of 1996 with the proceeds of a March 1996 equity
offering.
The provision for income tax increased in 1996 due to the higher
income before tax.
Nine months ended September 27, 1996 compared to nine months ended September 29,
1995
The Company recorded net sales of $92,422,000 for the nine months ended
September 27, 1996 compared to $71,886,000 for the nine months ended September
29, 1995, an increase of 29%. The increase is substantially a result of the
effects of the Birtcher, Master Medical and NDM acquisitions.
The Company's gross margin was 47.9% for the first nine months of 1996
compared to 47.2% for the first nine months of 1995. As discussed above, the
increase in gross margin percent is primarily a result of economies of scale and
efficiencies resulting from the completed acquisitions and the move of the
Company's ECG electrode manufacturing facility.
<PAGE>
Selling and administrative costs have increased comparing the first nine
months of 1996 with the first nine months of 1995 due to the effects of the
acquisitions. However, as a percentage of sales, selling and administrative
expense declined to 25.6% from 26.0% in the prior comparable period due to
economies of scale resulting from acquisitions.
The first nine months of 1996 had net interest expense of $384,000
compared to $1,436,000 in the first nine months of 1995. As discussed under
Liquidity and Capital Resources below, maximum borrowings during 1996 were
$65,000,000 of which $32,660,000 related to the February 23, 1996 acquisition of
NDM. All such indebtedness was repaid in late March 1996 with proceeds from the
Company's equity offering. Aggregate indebtedness at September 29, 1995 was
approximately $34,000,000 of which approximately $11,000,000 was incurred to
facilitate the Birtcher acquisition in March 1995 and $10,000,000 was incurred
to acquire Master Medical in May 1995.
Liquidity and Capital Resources
Cash flows provided or used by operating, investing and financing
activities for the first nine months of 1995 and 1996 are disclosed in the
Consolidated Statements of Cash Flows. Net cash provided by operations was
$17,179,000 for the first nine months of 1996 as compared to $223,000 used by
operations for the first nine months of 1995. Operating cash flows for the first
nine months of 1996 were aided by higher net income compared to the same period
in 1995. Depreciation and amortization in 1996 increased primarily due to the
effects of the completed acquisitions. Operating cash flows for the first nine
months of 1996 were negatively impacted by increases in accounts receivable and
other assets and reductions in accrued payroll and withholdings. Adding to cash
flows from operations for this period was a reduction in deferred income taxes,
an increase in income taxes payable and the income tax benefit of stock option
exercises.
Net cash used by investing activities was $37,697,000 in the first nine
months of 1996 compared to $13,305,000 in the first nine months of 1995. Cash
used for the 1996 acquisition of NDM approximated $33.7 million. Additions to
property, plant and equipment for the first nine months of 1996 amounted to
$3,992,000. During the first nine months of 1995, cash used for the Master
Medical acquisition amounted to $9,500,000 and additions to property, plant and
equipment amounted to $3,805,000.
Cash flows from financing activities were $32,957,000 for the first nine
months of 1996. In connection with the NDM acquisition on February 23, 1996, the
Company borrowed $32,660,000 bringing aggregate borrowings under its credit
facility to $65,000,000. On March 20, 1996, the Company completed an equity
offering of common stock and used $65,000,000 of the proceeds to eliminate the
indebtedness of the Company.
The Company's credit facility consists of a $60,000,000 secured revolving
line of credit which expires in March 2001. This facility carries an interest
rate of 0.5%-1.25% over LIBOR depending on defined cash flow performance ratios.
Management believes that cash generated from operations, its current cash
resources and funds available under its banking agreement will provide
sufficient liquidity to ensure continued working capital for operations and
funding of capital expenditures in the foreseeable future.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of shareholders was held on May 21, 1996.
C. Following is a description of the other matters voted upon at the May
21, 1996 annual meeting:
<TABLE>
<CAPTION>
Affirmative Negative
Vote Vote
---- ----
<S> <C> <C>
1. Approved an amendment to the Company's
1992 Stock Option Plan to increase to
2,000,000 from 1,012,500 the number of
shares of common stock that may be issued
upon the exercise of options. 9,203,514 1,657,352
2. Approved an amendment to the Company's
Certificate of Incorporation to increase
to 40,000,000 the number of authorized
shares of common stock. 12,568,610 577,176
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description
----------- -----------
11 Computation of weighted average number
of shares of common stock
Reports on Form 8-K
None
<PAGE>
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.
CONMED CORPORATION
(Registrant)
Date: November 8, 1996
/s/ Robert D. Shallish, Jr.
---------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial and
Accounting Officer)
EXHIBIT 11
Computation of weighted average number of shares of common stock
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
-------------------------- -------------------------
Sept. 29, Sept. 27 Sept.29, Sept. 27,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of period 10,785 14,933 9,059 11,105
Weighted average shares
issued 141 6 1,276 2,644
Incremental shares of
common stock outstanding
giving effect to stock
options and warrant 1,242 256 1,061 536
------ ------ ----- ------
12,168 15,195 11,396 14,285
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-27-1996
<CASH> 13,978
<SECURITIES> 0
<RECEIVABLES> 23,435
<ALLOWANCES> (786)
<INVENTORY> 23,010
<CURRENT-ASSETS> 64,918
<PP&E> 46,710
<DEPRECIATION> (16,785)
<TOTAL-ASSETS> 164,953
<CURRENT-LIABILITIES> 5,815
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 153,218
<TOTAL-LIABILITY-AND-EQUITY> 164,953
<SALES> 31,432
<TOTAL-REVENUES> 31,432
<CGS> 16,469
<TOTAL-COSTS> 25,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,301
<INCOME-TAX> 2,268
<INCOME-CONTINUING> 4,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,033
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0
</TABLE>
