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 June 30, 1997 Commission file number 0-16093
CONMED CORPORATION
- --------------------------------------------------------------------------------
(Exact name of 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
August 1, 1997 is 15,017,248 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
For the three months ended For the six months ended
-------------------------- -------------------------
June June June June
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ................... $ 31,790 $ 30,707 $ 60,990 $ 62,179
-------- -------- -------- --------
Cost and expenses:
Cost of sales ............. 16,505 16,259 31,672 32,734
Facility consolidation
expense (Note 7) ... -- -- -- 2,328
Selling and administrative 8,140 8,596 15,696 16,932
Research and development .. 694 791 1,377 1,542
-------- -------- -------- --------
Total operating expenses 25,339 25,646 48,745 53,536
-------- -------- -------- --------
Income from operations ...... 6,451 5,061 12,245 8,643
Interest income (expense),net 150 366 (532) 628
-------- -------- -------- --------
Income before taxes ......... 6,601 5,427 11,713 9,271
Provision for income taxes .. 2,377 1,954 4,217 3,338
-------- -------- -------- --------
Net income .................. $ 4,224 $ 3,473 $ 7,496 $ 5,933
======== ======== ======== ========
Weighted common shares and
equivalents ............... 15,229 15,193 13,805 15,227
======== ======== ======== ========
Earnings per share .......... $ .28 $ .23 $ .54 $ .39
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December June
1996 1997
-------- --------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 20,173 $ 31,984
Accounts receivable, net .............................. 26,336 25,295
Income taxes receivable ............................... 766 --
Inventories (Note 4) .................................. 23,187 22,773
Deferred income taxes ................................. 626 626
Prepaid expenses and other current assets ............. 740 1,333
-------- --------
Total current assets ........................... 71,828 82,011
Property, plant and equipment, net ...................... 26,458 26,030
Deferred income taxes ................................... 1,246 1,246
Covenant not to compete, net ............................ 713 493
Goodwill, net ........................................... 64,283 64,010
Patents, trademarks, and other assets, net .............. 5,555 5,292
-------- --------
Total assets ...................................... $170,083 $179,082
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 2,433 $ 2,327
Income taxes payable .................................. -- 1,110
Accrued payroll and withholdings ...................... 2,037 1,295
Accrued pension ....................................... 333 688
Accrued facility consolidation (Note 7) ............... -- 2,161
Other current liabilities ............................. 951 1,082
-------- --------
Total current liabilities ......................... 5,754 8,663
Deferred compensation ................................... 1,033 1,138
Accrued pension ......................................... 276 276
Long-term leases ........................................ 2,924 2,887
Other long-term liabilities ............................. 1,461 1,461
-------- --------
Total liabilities .............................. 11,448 14,425
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December June
1996 1997
-------- --------
(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;
40,000,000 authorized; 14,988,783 and
14,999,298 issued and outstanding,in
1996 and 1997, respectively ....................... 150 150
Paid-in capital ....................................... 111,867 111,956
Retained earnings ..................................... 46,618 52,551
-------- --------
Total equity ................................... 158,635 164,657
-------- --------
Total liabilities and shareholders' equity ........ $170,083 $179,082
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30 1996 and 1997
(in thousands)
(unaudited)
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 7,496 $ 5,933
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................ 1,809 1,916
Amortization ................................ 1,432 1,604
Increase (decrease) in cash flows
from changes in assets and liabilities:
Accounts receivable ................ (283) 1,041
Inventories ........................ (1,376) 230
Prepaid expenses and
other current assets ............. (585) (593)
Other assets ....................... (1,277) (147)
Accounts payable ................... 107 (106)
Income taxes payable ............... 1,845 1,876
Income tax benefit of stock
option exercises ................. 1,032 --
Accrued payroll and withholdings ... (736) (742)
Accrued pension .................... 323 355
Accrued facility consolidation ..... -- 2,161
Other current liabilities .......... (2,465) (386)
Deferred compensation and
other long-term liabilities ...... (232) 105
-------- --------
(406) 7,314
-------- --------
Net cash provided by operations .................. 7,090 13,247
-------- --------
Cash flows from investing activities:
Business acquisitions .............................. (31,172) --
Acquisition of property, plant,
and equipment ................................. (2,232) (1,488)
-------- --------
Net cash used by investing activities ............ (33,404) (1,488)
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30 1996 and 1997
(in thousands)
(unaudited)
(continued)
1996 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock, net ........ 65,794 89
Proceeds of long and short-term debt ............... 32,660 --
Payments on debt and other obligations ............. (65,331) (37)
-------- --------
Net cash provided by financing activities ........ 33,123 52
-------- --------
Net increase in cash
and cash equivalents .............................. 6,809 11,811
Cash and cash equivalents at beginning of period ..... 1,539 20,173
-------- --------
Cash and cash equivalents at end of period ........... $ 8,348 $ 31,984
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain statements contained in this Form 10-Q are forward looking and
may involve risk and uncertainties, including, but not limited to, the effects
of the sales force realignment, product demand resulting from the elimination of
certain end of period dealer incentives, the consolidation of the Dayton
facility, the acquisition of the product line from Davol Inc., and the impact of
competitive products pricing.
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 six months ended June 1996 and June
1997 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 1997 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 six months ended June
1996 and 1997 are not necessarily indicative of the results of operations to be
expected for any other quarter nor for the year ending December 31, 1997. The
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the year ended December
1996 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 June
1996 1997
------- -------
<S> <C> <C>
Raw materials .......................... $ 7,079 $ 9,059
Work-in-process ........................ 7,541 5,640
Finished goods ......................... 8,567 8,074
------- -------
Total ......................... $23,187 $22,773
======= =======
</TABLE>
<PAGE>
Note 5 - Business acquisitions
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 $3.3 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.
On an unaudited pro forma basis, assuming the NDM acquisition had
occurred as of the beginning of 1996, the consolidated results of the Company
for the six months ended June 30, 1996 would have been as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
<S> <C>
Pro forma net sales $63,490
=======
Pro forma net income $ 7,717
=======
Pro forma earnings per
common, and common
equivalent shares $ ,56
=======
</TABLE>
Note 6 - Stock offering
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.
Note 7 - Facility consolidation
During the first quarter of 1997, the Company recorded a pre-tax charge
of $2,328,000 related to the closure of the Company's Dayton, Ohio manufacturing
facility. Operations of the Dayton facility, which was acquired in connection
with the February 1996 acquisition of NDM, are being transferred to the
Company's manufacturing location in Rome, New York over the remainder of 1997.
The components of the charge consist primarily of estimated costs associated
with employee severance and termination, and the impairment of the carrying
value of fixed assets.
Note 8 - Subsequent events
Effective July 1, 1997, the Company completed the acquisition of a
product line from Davol Inc., a subsidiary of C.R. Bard, Inc. for a cash
purchase price of $24,000,000, subject to adjustment for inventory valuation on
the Closing. Annual sales associated with the product line approximate $25
million. This acquisition is being accounted for using the purchase method of
accounting.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended June 1997 compared to three months ended June 1996
Sales for the quarter ended June 1997 were $30,707,000 as compared to
sales of $31,790,000 in the quarter ended June 1996. As previously disclosed,
the Company eliminated in June 1997 its practice of providing financial
incentives to certain dealers for the placement of large stocking orders at the
end of the quarter. Management believes this caused a reduction in sales of up
to $2.0 million in the second quarter of 1997 and that sales should return to
normal levels in future periods as dealers utilize regular ordering patterns
rather than relying on end of period purchases to meet hospital needs.
Cost of sales decreased to $16,259,000 in the current quarter compared
to the $16,505,000 in the same quarter a year ago. The Company's gross margin
percentage was 47.1% in the second quarter of 1997 as compared to 48.1% in the
second quarter of 1996. Factors adversely impacting the Company's second quarter
1997 gross margin include continued lower pricing primarily related to ECG
electrodes and manufacturing inefficiencies related to the closure of the
Company's Dayton, Ohio facility and the transition of such operations to the
Company's facility in Rome, New York.
Selling and administrative expenses were $8,596,000 in the second
quarter of 1997 as compared to $8,140,000 in the second quarter of 1996, an
increase of 5.6%. This increase relates largely to incremental marketing
activities and non-recurring expenses related to the Company's restructuring of
its domestic sales force.
Research and development expense was $791,000 in the second quarter of
1997 as compared to $694,000 in the comparable 1996 period. While the level of
the Company's research and development activities were consistent during these
two periods, project related expenditures were higher in the second quarter of
1997 as compared to the second quarter of 1996.
The second quarter of 1997 had interest income of $366,000 compared to
interest income of $150,000 in the second quarter of 1996. 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 increase in interest income from 1996 to 1997 reflects higher
invested cash balances during the second quarter of 1997 as compared to 1996.
The provision for income tax decreased in 1997 due to the lower income
before tax.
Six months ended June 1997 compared to six months ended June 1996
Sales for the six months ended June 1997 were $62,179,000 as compared
to sales of $60,990,000 in the six months ended March 1996. The increase was
primarily a result of the NDM acquisition that was reflected in 1996 results
only from February 23, 1996, the date of acquisition. Offsetting the incremental
NDM sales volume was the effects of realignment of the Company's domestic sales
force effective January 1, 1997 and the effects of discontinuing certain end of
quarter dealer incentives.
<PAGE>
Prior to 1997, the Company maintained separate sales forces, each of
which sold only a portion of the Company's product offerings. With the
realignment, each of the Company's territory managers sell the entire produce
line of the Company. While management believes that this change will ultimately
enhance the Company's sales efforts, management believes that sales for the
first six months of 1997 were negatively impacted by this change due to training
and transition issues. Additionally, during the second quarter of 1997, the
Company announced that it would immediately discontinue certain end of quarter
dealer incentives which had previously been offered. Management believes that
this had a negative timing effect on the Company's sales in the second quarter
of 1997 by as much as $2.0 million.
Cost of sales increased to $32,734,000 in the first six months of 1997
as compared to the $31,672,000 in the same 1996 period. The Company's gross
margin percentage was 47.4% for the first six months of 1997 as compared to
48.1% in the first six months of 1996. This deterioration in gross margin
percentage reflects the effects of lower pricing primarily on ECG electrodes and
manufacturing inefficiencies related to the Dayton plant closure discussed
below.
During the first quarter of 1997, the Company recorded a charge of
$2,328,000 related to the closure of its Dayton, Ohio manufacturing facility.
Operations of the Dayton facility, which was acquired in connection with the
February 1996 acquisition of NDM, will be transferred to the Company's
manufacturing location in Rome, New York.
Selling and administrative costs increased to $16,932,000 in the first
six months of 1997 as compared to $15,696,000 in the first six months of 1996.
As a percentage of sales, selling and administrative expense was 27.2% in the
six months of 1997 as compared to 25.7% in the comparable 1996 period. This
increase reflects incremental 1997 expenses related to the domestic sales force
realignment and by increased marketing efforts.
The six months of 1997 had interest income of $628,000 compared to
interest expense of $532,000 in the six months of 1996. As discussed under
Liquidity and Capital Resources, maximum borrowings during the first quarter of
1996 were $65,000,000 of which $32,660,000 related to borrowings associated with
the February 23, 1996 acquisition of NDM. All such indebtedness was repaid in
late March 1996 with proceeds from the Company's equity offering.
The provision for income taxes decreased in 1997 due to the lower
income before tax.
Liquidity and Capital Resources
Cash flows provided or used by operating, investing and financing
activities for the first six months of 1996 and 1997 are disclosed in the
Consolidated Statements of Cash Flows. Net cash provided by operations was
$13,247,000 for the first six months of 1997 as compared to $7,090,000 for the
first six months of 1996. Operating cash flows for the first six months of 1997
were negatively impacted by lower net income as compared to the first six months
of 1996. Depreciation and amortization in 1997 increased primarily due to the
effects of the NDM acquisition. Operating cash flows for the first six months of
1997 were positively impacted by an accrual for facility consolidation, a
reduction in accounts receivable and an increase in income taxes payable.
Adversely impacting operating cash flows for the first six months of 1997 was an
increase in prepaid expenses and other current assets and a reduction in accrued
payroll and withholding.
<PAGE>
Net cash used by investing activities was $1,488,000 in the first six
months of 1997 compared to $33,404,000 in the first six months of 1996. During
the first six months of 1997, additions to property, plant and equipment
amounted to $1,488,000. Cash used for the 1996 acquisition of NDM approximated
$31.2 million. Additions to property, plant and equipment for the first six
months of 1996 amounted to $2,232,000.
Cash flows from financing activities were $52,000 for the first six
months of 1997 as compared to $33,123,000 for the first six 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.
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.
The Company's credit facility consists of a $60,000,000 secured
revolving line of credit which expires on March 2001. This facility carries an
interest rate of 0.5%-1.25% over LIBOR depending on defined cash flow
performance ratios. There were no borrowings outstanding under this facility
during the six months ended June 1997.
Item 5. Other Information
On May 6, 1997, the Company announced that its Board of Directors
authorized the Company to repurchase $30,000,000 of its common stock. The
repurchase program calls for shares to be purchased in the open market or in
private transactions from time to time. The Company may suspend or discontinue
the program at any time. The timing of the purchases will depend upon market
conditions, the market price of the common stock and management's assessment of
the Company's liquidity and cash flow needs. The Company will finance the
repurchases from cash-on-hand and amounts available under the Company's bank
credit facility.
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
On June 18, 1997 and July 11, 1997, the Company filed reports on Form
8-K related to the Company's acquisition of a product line.
<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: August 8, 1997 /s/Robert D. Shallish, Jr.
--------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
Exhibit Index
Exhibit
11 Computations of weighted average
number of shares of common stock
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
Computation of weighted average number of shares of common stock
For the three months ended For the six months ended
-------------------------- ------------------------
June June June June
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of period ........ 14,885 14,998 11,105 14,989
Weighted average shares issued 26 7 2,033 10
Incremental shares of
common stock outstanding
giving effect to stock
options and warrant ........ 318 188 667 228
------ ------ ------ ------
15,229 15,193 13,805 15,227
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,984
<SECURITIES> 0
<RECEIVABLES> 26,045
<ALLOWANCES> (750)
<INVENTORY> 22,773
<CURRENT-ASSETS> 82,011
<PP&E> 45,339
<DEPRECIATION> (19,308)
<TOTAL-ASSETS> 179,082
<CURRENT-LIABILITIES> 8,663
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 164,507
<TOTAL-LIABILITY-AND-EQUITY> 179,082
<SALES> 62,179
<TOTAL-REVENUES> 62,179
<CGS> 32,734
<TOTAL-COSTS> 20,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (150)
<INTEREST-EXPENSE> (628)
<INCOME-PRETAX> 9,271
<INCOME-TAX> 3,338
<INCOME-CONTINUING> 5,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,933
<EPS-PRIMARY> .39
<EPS-DILUTED> 0
</TABLE>
