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 30, 1998 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
November 2, 1998 is 15,135,378 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 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 three months ended For nine months ended
------------------------ ------------------------
Sept. Sept. Sept. Sept.
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .......................... $ 38,581 $ 85,714 $ 100,760 $ 246,469
--------- --------- --------- ---------
Cost and expenses:
Cost of sales .................... 21,601 41,121 54,335 126,377
Selling and administrative ....... 9,304 24,547 26,236 68,330
Facility consolidation
expense (Note 6) ............... -- -- 2,328 --
Research and development ......... 752 2,986 2,294 8,587
--------- --------- --------- ---------
Total operating expenses ....... 31,657 68,654 85,193 203,294
--------- --------- --------- ---------
Income from operations ............. 6,924 17,060 15,567 43,175
Interest income (expense),net ...... 134 (7,809) 762 (22,990)
--------- --------- --------- ---------
Income before income taxes
and extraordinary item ........... 7,058 9,251 16,329 20,185
Provision for income taxes ......... (2,541) (3,330) (5,878) (7,266)
--------- --------- --------- ---------
Income before extraordinary
item ............................. 4,517 5,921 10,451 12,919
Extraordinary item, net of
income taxes (Note 5) ............ -- -- -- (1,569)
--------- --------- --------- ---------
Net income ......................... $ 4,517 $ 5,921 $ 10,451 $ 11,350
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
(continued)
For three months ended For nine months ended
------------------------ ------------------------
Sept. Sept. Sept. Sept.
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per share data:
Income before extraordinary item
Basic ..................... $ .30 $ .39 $ .70 $ .85
Diluted ................... .30 .39 .69 .84
Extraordinary item - (Note 5)
Basic ..................... $ -- $ -- $ -- $ (.10)
Diluted ................... -- -- -- (.10)
Net Income
Basic ..................... $ .30 $ .39 $ .70 $ .75
Diluted ................... .30 .39 .69 .74
Weighted average common shares
Basic ..................... 14,987 15,102 14,995 15,065
Diluted ................... 15,219 15,361 15,221 15,300
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
ASSETS
December September
1997 1998
--------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 13,452 $ 3,290
Accounts receivable, net .............................. 47,188 56,883
Income taxes receivable ............................... 245 --
Inventories (Note 3) .................................. 61,971 74,138
Deferred income taxes ................................. 1,898 1,898
Prepaid expenses and other current assets ............. 1,186 2,384
--------- ---------
Total current assets ........................... 125,940 138,593
Property, plant and equipment, net ...................... 55,339 57,684
Deferred income taxes ................................... 10,783 11,665
Goodwill, net ........................................... 153,360 161,780
Patents, trademarks, and other assets, net .............. 216,215 214,206
--------- ---------
Total assets ...................................... $ 561,637 $ 583,928
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5) ............ $ 11,000 $ 19,003
Accounts payable ...................................... 9,556 18,237
Income taxes payable .................................. -- 1,967
Accrued interest ...................................... -- 1,580
Accrued payroll and withholdings ...................... 6,831 8,366
Other current liabilities ............................. 3,220 1,380
--------- ---------
Total current liabilities ......................... 30,607 50,533
Long-term debt (Note 5) ................................. 354,000 345,626
Deferred compensation ................................... 1,235 1,403
Accrued pension ......................................... 3,276 3,276
Long-term leases ........................................ 2,651 2,214
Other long-term liabilities ............................. 7,132 6,095
--------- ---------
Total liabilities .............................. 398,901 409,147
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December September
1997 1998
--------- ---------
(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; 15,036,553 and
15,119,061 issued and outstanding,in
1997 and 1998, respectively ...................... 151 152
Paid-in capital ....................................... 123,451 124,145
Retained earnings ..................................... 39,553 50,903
Less 25,000 shares of common stock in treasury,
at cost ............................................. (419) (419)
--------- ---------
Total equity ................................... 162,736 174,781
--------- ---------
Total liabilities and shareholders' equity ........ $ 561,637 $ 583,928
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1998
(in thousands)
(unaudited)
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 10,451 $ 11,350
--------- ---------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................. 2,979 6,028
Amortization ................................. 2,504 11,755
Extraordinary item, net of
income taxes (Note 5) ...................... -- 1,569
Increase (decrease) in cash flows
from changes in assets and liabilities:
Accounts receivable ................. (5,696) (9,695)
Inventories ......................... 2,864 (14,760)
Prepaid expenses and
other current assets .............. (414) (1,198)
Other assets ........................ 155 (1,873)
Accounts payable .................... 753 8,681
Income taxes payable ................ 1,762 2,212
Accrued interest .................... -- 1,580
Accrued payroll and withholdings .... (169) 1,535
Other current liabilities ........... 867 (2,125)
Deferred compensation and
other long-term liabilities ....... 159 (1,020)
--------- ---------
5,764 2,689
--------- ---------
Net cash provided by operations ................... 16,215 14,039
--------- ---------
Cash flows from investing activities:
Payments related to business acquisitions ........... (24,000) (9,965)
Acquisition of property, plant,
and equipment .................................. (6,884) (9,924)
--------- ---------
Net cash used by investing activities ............. (30,884) (19,889)
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1998
(in thousands)
(unaudited)
(continued)
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock .............. 213 694
Payment for purchase of treasury stock .............. (419) --
Borrowings under revolving credit facility(net) ..... -- 1,000
Proceeds of long-term debt .......................... -- 130,000
Payments related to issuance of long-term debt ...... -- (4,635)
Payments on long-term debt and
other obligations ................................. (139) (131,371)
--------- ---------
Net cash used by financing activities ............. (345) (4,312)
--------- ---------
Net decrease in cash
and cash equivalents ............................... (15,014) (10,162)
Cash and cash equivalents at beginning of period ...... 20,173 13,452
--------- ---------
Cash and cash equivalents at end of period ............ $ 5,159 $ 3,290
========= =========
</TABLE>
See notes to consolidated financial statements.
<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. All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company is
a leading developer, manufacturer and supplier of a range of medical instruments
and systems used in surgical and other medical procedures. The Company's product
offerings include electrosurgical systems, electrocardiogram ("ECG") electrodes
and accessories, surgical suction instruments, intravenous ("IV") therapy
accessories and wound care products. Through its acquisition of Linvatec
Corporation (Note 4), the Company has expanded its arthroscopic surgery product
line and broadened its product offerings to include powered surgical instruments
and imaging products for minimally invasive surgery. The Company's products are
used in a variety of clinical settings, such as operating rooms, surgery
centers, physicians' offices and critical care areas of hospitals.
Note 2 - Interim financial information
The financial statements for the three and nine months ended September
1997 and September 1998 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 1998
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 1997 and 1998 are not necessarily indicative of the results of
operations to be expected for any other quarter nor for the year ending December
31, 1998. The consolidated financial statements and notes thereto should be read
in conjunction with the financial statements and notes for the year ended
December 1997 included in the Company's Annual Report to the Securities and
Exchange Commission on Form 10-K. Certain 1997 amounts previously reported have
been reclassified to conform with the current year presentation.
Note 3 - Inventories
The components of inventory are as follows (in thousands):
December September
1997 1998
------- -------
Raw materials $28,097 $34,684
Work-in-process 6,569 6,323
Finished goods 27,305 33,131
------- -------
Total $61,971 $74,138
======= =======
<PAGE>
Note 4 - Business acquisitions
On July 1, 1997, the Company completed the acquisition of the surgical
suction instrument and tubing product line from Davol, Inc., a subsidiary of
C.R. Bard, Inc., for a cash purchase price of $24,000,000. This acquisition is
being accounted for using the purchase method. Accordingly, the results of
operations of the acquired product line 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 December 31, 1997, the Company acquired the business and certain
assets of Linvatec Corporation, a wholly-owned subsidiary of Bristol-Myers
Squibb Company, for a cash purchase price of $370,000,000 and the assumption of
$16,608,000 of liabilities. Bristol-Myers Squibb Company also received a warrant
to purchase 1,000,000 shares of the Company's common stock at $34.23 per share.
This warrant expires December 31, 2007, and was valued at $10,625,000.
The acquisition of Linvatec Corporation is being accounted for using
the purchase method. The allocation of purchase price resulted in identifiable
intangible assets, including patents and technology ($9,500,000), trademarks and
tradenames ($96,000,000) and customer relationships ($97,000,000), aggregating
$204,000,000, which will be amortized over periods from 5 to 40 years. Goodwill
associated with the Linvatec acquisition approximated $80,000,000 and will be
amortized on a straight-line basis over a 40-year period. Additionally, a
portion of the purchase price was allocated to purchased in-process research and
development ("R&D"). Purchased in-process R & D includes the value of products
in the development stage and not considered to have reached technological
feasibility. In accordance with applicable accounting rules, purchased
in-process R&D is required to be expensed. Accordingly, $34,000,000 of the
acquisition cost was expensed on December 31, 1997.
In connection with the Linvatec acquisition, the Company entered into
agreements with Zimmer, Inc., a wholly-owned subsidiary of Bristol-Myers Squibb
Company, pursuant to which Zimmer has agreed to distribute certain of Linvatec's
products for periods ranging up to three years from the acquisition date.
The allocation of the purchase price for the Linvatec acquisition is
based on management's preliminary estimates. It is possible that re-allocations
will be required as additional information becomes available. Management does
not believe that such re-allocations will have a material effect on the
Company's financial position or results of operations.
On an unaudited pro forma basis, assuming the Davol and Linvatec acquisitions
had occurred as of January 1, 1997, the consolidated results of the Company for
the three and nine months ended September 1997 are estimated to be as follows
(in thousands, except per share amounts):
For the Three For the Nine
Months Ended Months Ended
September 1997 September 1997
Pro forma revenues............ $ 88,375 $250,769
Pro forma net income (loss)... $ 5,402 $ (9,655)
Pro forma earnings per share:
Basic................ $ .36 $ (.64)
Diluted.............. $ .35 $ (.64)
<PAGE>
Note 5 - Subordinated Note Offering
As discussed under "Liquidity and Capital Resources", the Company
completed a subordinated note offering in the aggregate principal amount of
$130.0 million in March 1998. Proceeds from the offering amounting to $126.1
million were used to reduce the Company's term loans under its Credit Facility.
Deferred financing fees related to the portion of the Credit Facility repaid
amounting to $2.5 million ($1.6 million net of income taxes) were written-off as
an extraordinary charge.
Note 6 - 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, were transferred to the Company's
manufacturing location in Rome, New York in 1997. The components of the charge
consisted primarily of costs associated with employee severance and termination,
and the impairment of the carrying value of fixed assets.
Note 7 - Subsidiary Guarantees
The Company's Credit Facility and subordinated notes (the "Notes") are
guaranteed (the "Subsidiary Guarantees") by each of the Company's subsidiaries
in existence on the closing dates of the Credit Facility and the Notes (the
"Subsidiary Guarantors"). The Subsidiary Guarantees provide that each Subsidiary
Guarantor will fully and unconditionally guarantee the Company's obligations on
a joint and several basis. Each Subsidiary Guarantor is wholly-owned by the
Company.
Separate financial statements and other disclosures concerning the Subsidiary
Guarantors are not presented because management has determined such financial
statements and other disclosures are not material to investors. The combined
condensed financial information of the Company's Subsidiary Guarantors is as
follows (in thousands):
December September
1997 1998
---- ----
Current assets............................. $ 54,799 $ 83,476
Non-current assets......................... 327,751 334,801
Current liabilities........................ 15,339 24,563
Non-current liabilities.................... 345,826 341,783
For the Three For the Nine
Months Ended Months Ended
September 1998 September 1998
-------------- --------------
Revenues................................... $ 61,285 $174,864
Income from operations..................... 13,110 31,083
Net income................................. 3,380 3,469
<PAGE>
Note 8 - Subsequent Events
On October 8, 1998, the Company entered into an asset purchase
agreement whereby the Company would pay approximately $17,500,000 for the assets
and business related to certain arthroscopy products. The acquisition is subject
to various conditions, including the expiration or termination of the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, and is expected to close in
November 1998. The Company expects to fund the acquisition through available
borrowings under its Credit Facility.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion includes certain forward-looking statements.
Such forward-looking statements are subject to a number of factors, including
material risks, uncertainties and contingencies, which could cause actual
results to differ materially from the forward-looking statements. Such factors
include, among others, the following: general economic and business conditions;
changes in customer preferences; competition; changes in technology; the
integration of any acquisitions, including the Linvatec acquisition; changes in
business strategy; the indebtedness of the Company; the identification and
remediation of Year 2000 issues; quality of management, business abilities and
judgment of the Company's personnel; and the availability, terms and deployment
of capital. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Three months ended September 1998 compared to three months ended September 1997
Sales for the quarter ended September 1998 were $85,714,000, an
increase of 122% compared to sales of $38,581,000 in the quarter ended September
1997. The increase was principally the result of the acquisition of Linvatec on
December 31, 1997.
Cost of sales increased to $41,121,000 in the current quarter compared
to the $21,601,000 in the same quarter a year ago as a result of increased sales
volume. The Company's gross margin percentage was 52.0% for the third quarter of
1998 as compared to 44.0% in the third quarter of 1997 reflecting the overall
higher gross margin percentage of the Linvatec product lines as compared to the
Company's other products.
Selling and administrative costs increased to $24,547,000 in the
current quarter as compared to $9,304,000 in the third quarter of 1997,
primarily as a result of the Linvatec acquisition. As a percentage of sales,
selling and administrative expense was 28.6% in the third quarter of 1998 as
compared to 24.1% in the comparable 1997 period. The Linvatec business has
required a higher level of selling and administrative expense as a percentage of
sales as compared to the Company's historic levels. Additionally, goodwill and
intangible amortization related to the Linvatec acquisition amounts to
approximately $2.0 million per quarter or 2.3% of the Company's consolidated
sales for the current quarter.
Research and development expense was $2,986,000 in the third quarter of
1998 as compared to $752,000 in the third quarter of 1997. The increase reflects
expense related to Linvatec research and development activities.
The third quarter of 1998 had interest expense of $7,809,000 compared
to interest income of $134,000 in the third quarter of 1997. As discussed under
Liquidity and Capital Resources, the Company acquired Linvatec Corporation on
December 31, 1997 for $370 million that was borrowed under its Credit Facility.
The Company had no borrowings outstanding during the third quarter of 1997.
<PAGE>
Nine months ended September 1998 compared to nine months ended September 1997
Sales for the nine months ended September 1998 were $246,469,000, an
increase of 145% compared to sales of $100,760,000 in the nine months ended
September, 1997. The increase was principally the result of the acquisitions of
Linvatec on December 31, 1997 and the surgical suction instrument and tubing
product line from Davol on July 1, 1997.
Cost of sales increased to $126,377,000 in the first nine months of
1998 as compared to the $54,335,000 in the same period a year ago as a result of
increased sales volume. The Company's gross margin percentage was 48.7% for the
first nine months of 1998 as compared to 46.1% in the 1997 period. In connection
with purchase accounting for the Linvatec acquisition, the Company increased the
acquired value of inventory by $2.9 million over its production cost. This
inventory was sold during the quarter ended March 1998 and, accordingly, this
non-recurring adjustment served to reduce the Company's gross margin percentage
by 1.2 percentage points. Excluding the impact of this nonrecurring adjustment,
the Company's gross margin percentage was 49.9% in the first nine months of 1998
reflecting the overall higher gross margin percentage of the Linvatec product
lines as compared to the Company's other products.
Selling and administrative costs increased to $68,330,000 in the first
nine months of 1998 as compared to $26,236,000 in the first nine months of 1997,
primarily as a result of the Linvatec acquisition. As a percentage of sales,
selling and administrative expense was 27.7% in the first nine months of 1998
and 26.0% in the comparable 1997 period.
Research and development expense was $8,587,000 in the first nine
months of 1998 as compared to $2,294,000 in the first nine months of 1997. The
increase reflects expense related to Linvatec research and development
activities.
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 were transferred to the Company's
manufacturing location in Rome, New York.
The first nine months of 1998 had interest expense of $22,990,000
compared to interest income of $762,000 in the first nine months of 1997. As
discussed under Liquidity and Capital Resources, the Company acquired Linvatec
Corporation on December 31, 1997 for $370 million that was borrowed under its
Credit Facility. The Company had no borrowings outstanding during the first nine
months of 1997. The Company completed an offering of subordinated notes during
the quarter ended March 1998 and used the net proceeds to repay a portion of the
Company's term loans under its Credit Facility. Deferred financing fees relating
to the portion of the Credit Facility repaid amounting to $2.5 million ($1.6
million net of income taxes) were written-off as an extraordinary item.
<PAGE>
Liquidity and Capital Resources
Net cash provided by operations was $14,039,000 for the first nine
months of 1998 as compared to $16,215,000 for the first nine months of 1997.
Depreciation and amortization increased in 1998 primarily as a result of the
completed acquisitions. Additionally, during the first quarter of 1998, the
Company recorded a non-cash extraordinary charge related to the write-off of
deferred financing fees. Operating cash flow for the first nine months of 1998
was positively impacted by increases in income taxes payable and accounts
payable. Adversely impacting operating cash flows for the first nine months of
1998 was an increase in accounts receivable and inventories primarily as a
result of the establishment of international sales and distribution operations
previously managed by Zimmer.
Net cash used by investing activities for the first nine months of 1998
and 1997 included $9,965,000 of costs related to the Linvatec acquisition and
$24.0 million related to the acquisition of the surgical suction instrument and
tubing product line from Davol, Inc., respectively. Capital expenditures for the
first nine months of 1998 and 1997 amounted to $9,924,000 and $6,884,000,
respectively.
Financing activities during the first nine months of 1998 involved the
completion of a subordinated note (the "Notes") offering in the aggregate
principal amount of $130.0 million in March 1998. Net proceeds from the offering
amounting to $126.1 million were used to repay a portion of the Company's loans
under its Credit Facility. In addition to the net proceeds of the subordinated
note offering, the Company made payments on loans under its Credit Facility
aggregating $5.3 million during the first nine months of 1998.
In connection with the Linvatec acquisition, the Company borrowed
$350.0 million in term loans under its Credit Facility. Upon the application of
mandatory principal payments including the subordinated note proceeds, the
Company's term loans at September 30, 1998 aggregated $218.6 million and are
repayable quarterly over terms of five and seven years. The Company's Credit
Facility also includes a $100 million revolving credit facility which expires
December 2002, of which $84 million was available on September 30, 1998. The
Credit Facility borrowings carry interest rates based on LIBOR plus 2.00% on the
revolving credit facility and five-year term loan, and LIBOR plus 2.25% on the
seven-year term loan. The interest rates at September 30, 1998 were 7.63%,7.88%
and 7.63% for the five-year term loan, the seven-year term loan and revolving
credit facility, respectively. Additionally, during the commitment period, the
Company is obligated to pay a fee of 0.5% per annum on the unused portion of the
revolving credit facility.
The Company does not use derivative financial instruments for trading
or other speculative purposes. Interest rate swaps, a form of derivative, are
used to manage interest rate risk. Currently, the Company has entered into two
interest rate swaps expiring in June 2001 which convert $100 million of floating
rate debt under the Company's Credit Facility into fixed rate debt at rates
ranging from 7.18% to 8.25%. Provisions in one of the interest rate swaps
cancels such agreement when LIBOR exceeds 7.35%.
<PAGE>
The Credit Facility is collateralized by all the Company's personal
property. The Credit Facility contains covenants and restrictions which, among
other things, require maintenance of certain working capital levels and
financial ratios, prohibit dividend payments and restrict the incurrence of
indebtedness and certain other activities, including acquisitions and
dispositions. The Company is also required to make mandatory prepayments from
net cash proceeds from any issue of equity and asset sales and also from any
excess cash flow, as defined.
The Notes are in aggregate principal amount of $130 million and have a
maturity date of March 15, 2008. The subordinated notes bear interest at 9.0%
per annum which is payable semi-annually. The indenture governing the
subordinated notes has certain restrictive covenants and provides for, among
other things, mandatory and optional redemptions by the Company.
The Credit Facility and Notes are guaranteed (the "Subsidiary
Guarantees") by each of the Company's subsidiaries in existence on the closing
dates of the Credit Facility and the Notes (the "Subsidiary Guarantors"). The
Subsidiary Guarantees provide that each Subsidiary Guarantor will fully and
unconditionally guarantee the Company's obligations on a joint and several
basis. Each Subsidiary Guarantor is wholly-owned by the Company. Under the
Credit Facility and subordinated note indenture, the Company's subsidiaries are
subject to the same covenants and restrictions that apply to the Company (except
that the Subsidiary Guarantors are permitted to make dividend payments and
distributions, including cash dividend payments, to the Company or another
Subsidiary Guarantor).
Management believes that cash generated from operations, its current
cash resources and funds available under its Credit Facility will provide
sufficient liquidity to ensure continued working capital for operations, debt
service and funding of capital expenditures in the foreseeable future.
The Company and its subsidiaries use information technology ("IT") and
non-IT systems that contain embedded technology throughout their businesses.
Third parties with which the Company has material relationships also use such
systems. After December 31, 1999, these systems will face a potentially serious
problem if they are not able to recognize and correctly process dates beyond
December 31, 1999. All of the Company's products, operations and information
technology systems have been inventoried and those that are not Year 2000 ready
have been identified. The upgrading and testing of those which are not Year 2000
ready is on schedule to be completed by March 31, 1999. The Company is also in
the process of contacting its vendors and customers to ascertain their
preparation for the Year 2000 issue and is in the process of identifying
critical business partners for which the need for additional due diligence will
be assessed. The costs of the Company's Year 2000 assessment and remediation
program have not been and are not expected to be material. However, because the
program is not yet complete, there can be no assurances that such costs will not
become material. Although the Company does not expect the Year 2000 issue to
have a material effect on its results of operations, liquidity or financial
condition, failure of critical IT systems could have a material adverse effect
on the Company's results of operations, liquidity or financial condition.
Further, the Company cannot eliminate the risk that revenue will be lost or
costs will be incurred as a result of the failure by third parties to properly
remediate their Year 2000 issues. Because the Company has not identified any
areas of its own or its third parties IT and non-IT systems that will not be
Year 2000 compliant, it has not yet developed any necessary contingency plans.
<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
27 Financial Data Schedule
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 13, 1998
/s/Robert D. Shallish, Jr.
--------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
<PAGE>
Exhibit Index
Exhibit
-------
11 - Computations of weighted average
number of shares of common stock
27 - Financial Data Schedule
<TABLE>
<CAPTION>
EXHIBIT 11
Computation of weighted average number of shares of common stock
For the three months ended For the nine months ended
-------------------------- -------------------------
September September September September
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of period ............... 14,999 15,077 14,989 15,037
Weighted average shares
issued and repurchased ............ (12) 25 6 28
------- ------- ------- -------
Shares used in the
calculation of basic EPS
(weighted average shares
outstanding) ...................... 14,987 15,102 14,995 15,065
Effect of dilutive
securities ........................ 232 259 226 235
------- ------- ------- -------
Shares used in the
calculation of diluted
EPS ............................... 15,219 15,361 15,221 15,300
======== ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,290
<SECURITIES> 0
<RECEIVABLES> 59,412
<ALLOWANCES> (2,529)
<INVENTORY> 74,138
<CURRENT-ASSETS> 138,593
<PP&E> 84,571
<DEPRECIATION> (26,887)
<TOTAL-ASSETS> 583,928
<CURRENT-LIABILITIES> 50,533
<BONDS> 364,629
0
0
<COMMON> 152
<OTHER-SE> 174,629
<TOTAL-LIABILITY-AND-EQUITY> 583,928
<SALES> 85,714
<TOTAL-REVENUES> 85,714
<CGS> 41,121
<TOTAL-COSTS> 41,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,809
<INCOME-PRETAX> 9,251
<INCOME-TAX> 3,330
<INCOME-CONTINUING> 5,921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,921
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
