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, 1999 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 9, 1999 is 15,299,043 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 Shareholders'
Equity
- 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.
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ................... $ 85,714 $ 91,712 $ 246,469 $ 273,064
--------- --------- --------- ---------
Cost and expenses:
Cost of sales (Note 3) .... 41,121 45,036 126,377 131,403
Selling and administrative 24,547 26,659 68,330 79,775
Research and development .. 2,986 3,035 8,587 8,833
--------- --------- --------- ---------
Total operating expenses 68,654 74,730 203,294 220,011
--------- --------- --------- ---------
Income from operations ...... 17,060 16,982 43,175 53,053
Interest expense, net ........ (7,809) (8,212) (22,990) (23,952)
--------- --------- --------- ---------
Income before income taxes
and extraordinary item .... 9,251 8,770 20,185 29,101
Provision for income taxes .. (3,330) (3,157) (7,266) (10,476)
--------- --------- --------- ---------
Income before extraordinary
item ...................... 5,921 5,613 12,919 18,625
Extraordinary item, net of
income taxes (Note 4) ..... -- -- (1,569) --
--------- --------- --------- ---------
Net income .................. $ 5,921 $ 5,613 $ 11,350 $ 18,625
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Per share data:
Income before extraordinary item
Basic $ .39 $ 37 $ .85 $ 1.22
Diluted .39 .36 .84 1.19
Extraordinary item - (Note 4)
Basic $ - $ - $ ( 10) $ -
Diluted - - ( 10) -
Net Income
Basic $ .39 $ .37 $ .75 $ 1.22
Diluted .39 .36 .74 1.19
Weighted average common shares
Basic 15,102 15,276 15,065 15,228
Diluted 15,361 15,609 15,300 15,591
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
ASSETS (unaudited)
December September
1998 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 5,906 $ 2,817
Accounts receivable, net .............................. 66,819 68,891
Income taxes receivable ............................... 1,441 --
Inventories (Note 3) .................................. 78,058 94,362
Deferred income taxes ................................. 2,776 2,776
Prepaid expenses and other current assets ............. 4,620 3,703
--------- ---------
Total current assets ........................... 159,620 172,549
Property, plant and equipment, net ...................... 59,044 56,936
Deferred income taxes ................................... 3,900 3,900
Goodwill, net ........................................... 194,690 222,272
Patents, trademarks, and other assets, net .............. 211,530 206,485
Total assets ...................................... $ 628,784 $ 662,142
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................... $ 22,995 $ 30,480
Accrued interest ...................................... 6,069 2,607
Accounts payable ...................................... 19,594 16,573
Income taxes payable .................................. - 6,286
Accrued payroll and withholdings ...................... 9,665 5,499
Other current liabilities ............................. 7,873 5,600
--------- ---------
Total current liabilities ......................... 66,196 67,045
Long-term debt .......................................... 361,877 375,024
Other long-term liabilities ............................. 18,543 17,918
--------- ---------
Total liabilities .............................. 446,616 459,987
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<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;
100,000,000 authorized; 15,182,811 and
15,303,016 issued and outstanding,in
1998 and 1999, respectively ....................... 152 153
Paid-in capital ....................................... 125,039 126,632
Retained earnings ..................................... 57,361 75,986
Cumulative translation adjustments .................... 35 (197)
Less 25,000 shares of common stock in treasury,
at cost ............................................. (419) (419)
--------- ---------
Total equity ................................... 182,168 202,155
--------- ---------
Total liabilities and shareholders' equity ........ $ 628,784 $ 662,142
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 1998 and 1999
(in thousands)
(unaudited)
1998 1999
--------- ---------
<S> <C> <C>
Common stock
Balance at beginning of period ................. $ 151 $ 152
Exercise of stock options ...................... 1 1
--------- ---------
Balance at end of period ....................... 152 153
--------- ---------
Paid-in capital
Balance at beginning of period ................. 123,451 125,039
Exercise of stock options ...................... 694 1,593
--------- ---------
Balance at end of period ....................... 124,145 126,632
--------- ---------
Retained earnings
Balance at beginning of period ................. 39,553 57,361
Net income (A) ................................. 11,350 18,625
--------- ---------
Balance at end of period ....................... 50,903 75,986
--------- ---------
Accumulated other comprehensive income
Balance at beginning of period
Cumulative foreign currency translation
adjustments ............................... -- 35
Other comprehensive income
Foreign currency translation adjustments(B) .. -- (232)
Balance at end of period
Cumulative foreign currency translation
adjustments ............................... -- (197)
--------- ---------
Treasury stock at beginning
and end of period ............................ (419) (419)
--------- ---------
Total shareholders' equity ....................... $ 174,781 $ 202,155
========= =========
Total comprehensive income (A + B) ............... $ 11,350 $ 18,393
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1999
(in thousands)
(unaudited)
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................... $ 11,350 $ 18,625
--------- ---------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ............................ 6,028 6,647
Amortization ............................ 11,755 12,215
Extraordinary item, net of
income taxes (Note 4) ................. 1,569 --
Increase (decrease) in cash flows
from changes in assets and liabilities:
Accounts receivable ............ (9,695) (1,854)
Inventories .................... (14,760) (12,655)
Prepaid expenses and
other current assets ......... (1,198) 917
Accounts payable ............... 8,681 (3,021)
Income taxes receivable/payable 2,212 7,727
Accrued interest ............... 1,580 (3,462)
Accrued payroll and withholdings 1,535 (4,166)
Other current liabilities ...... (2,125) (92)
Other assets/liabilities, net .. (2,893) (1,417)
--------- ---------
2,689 839
--------- ---------
Net cash provided by operations .............. 14,039 19,464
--------- ---------
Cash flows from investing activities:
Payments related to business acquisitions ...... (9,965) (38,224)
Acquisition of property, plant,
and equipment ............................. (9,924) (5,894)
--------- ---------
Net cash used by investing activities ........ (19,889) (44,118)
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from financing activities:
Proceeds of long term debt ..................... 130,000 40,900
Borrowings (repayments) under revolving
credit facility, net ......................... 1,000 (3,000)
Proceeds from issuance of common stock ......... 694 1,594
Payments related to issuance of long-term debt . (4,635) (661)
Payments on long-term debt ..................... (131,371) (17,268)
--------- ---------
Net cash provided (used) by financing
activities .............................. (4,312) 21,565
--------- ---------
Net decrease in cash
and cash equivalents .......................... (10,162) (3,089)
Cash and cash equivalents at beginning of period . 13,452 5,906
--------- ---------
Cash and cash equivalents at end of period ....... $ 3,290 $ 2,817
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Consolidation and Operations
- -------------------------------------
The consolidated financial statements include the accounts of CONMED
Corporation (the "Company") and its subsidiaries. All 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 believes its
product offerings, which include arthroscopic surgery devices, powered surgical
instruments, electrosurgical systems, electrocardiogram electrodes and
accessories, surgical suction instruments, intravenous therapy accessories and
wound care products, have similar economic, operating and other related
characteristics. 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
1998 and 1999 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 1999 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 1999 are not necessarily indicative of the results of operations to be
expected for any other quarter nor for the year ending December 1999. The
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the year ended December
1998 included in the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K. Certain 1998 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
1998 1999
-------- --------
Raw materials............... $ 35,204 $ 37,293
Work-in-process............ 7,429 12,103
Finished goods.............. 35,425 44,966
-------- --------
Total................. $ 78,058 $ 94,362
======== ========
<PAGE>
In connection with purchase accounting for the December 31, 1997
acquisition of Linvatec Corporation, the Company increased the acquired value of
inventory by $3,000,000 over its production cost. This inventory was sold during
the quarter ended March 1998 and, accordingly, this non-recurring adjustment
served to increase cost of sales during the quarter ended March 1998 and the
nine months ended September 1998 by $3,000,000. Similarly, in connection with
the August 1999 Powered Instrument Acquisition (see Note 6), the Company
increased the acquired value of inventory by $1,600,000. This inventory was sold
during the quarter ended September 1999 resulting in a non-recurring adjustment
to increase cost of sales during the quarter ended and nine months ended
September 1999 by $1,600,000.
Note 4 - Subordinated Note Offering
- -----------------------------------
The Company completed a subordinated note offering (the "Notes") in the
aggregate principal amount of $130,000,000 in March 1998. Proceeds from the
offering amounting to $126,100,000 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 $2,451,000 ($1,569,000 net of income taxes)
were written-off as an extraordinary charge.
Note 5- Subsidiary Guarantees
- -----------------------------
The Company's credit facility and Notes are guaranteed (the "Subsidiary
Guarantees") by each of the Company's subsidiaries (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
1998 1999
---- ----
Current assets............................. $ 96,434 $111,329
Non-current assets......................... 366,299 385,953
Current liabilities........................ 30,367 21,415
Non-current liabilities.................... 363,160 370,011
For the Nine
Months Ended September
1998 1999
---- ----
Revenues................................... $174,864 $210,166
Income from operations..................... 31,376 44,082
Net income................................. 5,228 12,817
<PAGE>
Note 6 - Business Acquisitions
- ------------------------------
On November 16, 1998 the Company acquired the assets related to an
arthroscopy product line from Minnesota Mining and Manufacturing Company ("3M")
for a purchase price of $17,500,000 which was funded through borrowings under
the Company's revolving credit facility. This acquisition (the "Arthroscopy
Acquisition") is being accounted for using the purchase method. 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 June 29, 1999, the Company agreed to purchase certain assets of the
powered surgical instrument business of 3M (the "Powered Instrument
Acquisition"). The Company and 3M also agreed to a series of transition-related
matters in order to facilitate the transfer of the business. The acquisition was
completed on August 11, 1999 for a purchase price of $39,000,000, before certain
adjustments, which was funded through borrowings under the Company's amended
credit facility (see discussion under Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations). This acquisition is being accounted for using the purchase method.
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 purchase price for the powered instrument acquisition
is based on management's preliminary estimates. It is possible that
re-allocation will be required as additional information becomes available.
Management does not believe that such reallocations will have a material effect
on the Company's financial position or results of operations.
<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; 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 1999 compared to three months ended September 1998
Sales for the quarter ended September 1999 were $91,712,000, an
increase of 7.0% compared to sales of $85,714,000 in the same quarter a year
ago. The increase is a result of increased sales volumes, primarily of
orthopaedic products, due to the powered instrument acquisition, the arthroscopy
acquisition and increased demand for existing product lines.
Cost of sales increased to $45,036,000 in the current quarter compared
to $41,121,000 in the same quarter a year ago. In connection with purchase
accounting for the Powered Instrument Acquisition, the Company increased the
acquired value of inventory by $1,600,000 over its production cost. This
inventory was sold during the quarter ended September 1999 and served to
increase cost of sales during the third quarter of 1999 by $1,600,000. Excluding
the impact of this non-recurring adjustment, cost of sales increased to
$43,415,000 in the third quarter of 1999 from $41,121,000 in the third quarter
of 1998, as a result of increased sales volumes. Excluding the nonrecurring
adjustment, the Company's gross margin percentage for the third quarter of 1999
was 52.7% compared to 52.0% for the third quarter of 1998. The increase in gross
margin percentage is primarily attributable to increased sales volumes in the
Company's orthopaedic product lines which carry higher gross margins than
certain of the Company's other product lines.
Selling and administrative costs increased to $26,659,000 in the third
quarter of 1999 as compared to $24,547,000 in the third quarter of 1998. The
increase in selling and administrative expense is primarily a result of
additional selling expense associated with the increase in sales in the third
quarter of 1999 and increased intangible amortization resulting from the
Arthroscopy Acquisition and the Powered Instrument Acquisition. As a result of
these costs, as a percentage of sales, selling and administrative expense
increased to 29.1% in the third quarter of 1999 as compared to 28.6% in the
third quarter of 1998.
<PAGE>
Research and development expense was $3,035,000 in the third quarter of
1999 as compared to $2,986,000 in the third quarter of 1998. As a percentage of
sales, research and development expense was 3.3% in the third quarter of 1999 as
compared to 3.5% in the comparable 1998 period. The amount of research and
development expense incurred in the third quarter of 1999 is consistent with the
comparable 1998 quarter representing the Company's ongoing efforts in this area;
the decrease in third quarter 1999 expense as a percentage of sales is primarily
a result of higher sales in the third quarter of 1999 as compared to the third
quarter 1998.
Interest expense for the third quarter of 1999 was $8,212,000 compared
to $7,809,000 in the third quarter of 1998. As part of the Powered Instrument
Acquisition, the Company's existing credit facility was amended in the third
quarter of 1999 to provide for an additional $40,000,000 loan commitment which
was used to fund the acquisition purchase price. The increase in interest
expense is primarily a result of these higher term loan borrowings. (See
discussion under Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results of Operations).
Nine months ended September 1999 compared to nine months ended September 1998
Sales for the nine months ended September 1999 were $273,064,000, an
increase of 10.8% compared to sales of $246,469,000 in the nine months ended
September 1998. Approximately 3% of the increase in sales for the first nine
months of 1999 as compared to 1998 reflects the pricing impact of changes in
distribution from 1999 as compared to the first six months of 1998. In
connection with the December 31, 1997 acquisition of Linvatec Corporation from
Bristol-Meyers Squibb ("BMS"), the Company entered into fixed price distribution
agreements with Zimmer, Inc., a wholly-owned subsidiary of BMS, to distribute
certain of the Company's orthopaedic products in selected geographic markets.
Beginning in the third quarter of 1998, most of the products formerly
distributed by Zimmer were sold and distributed directly by the Company,
resulting in improved pricing for the affected products. The remainder of the
increase in sales in the first nine months of 1999 as compared to the first nine
months of 1998 is a result of increased sales volumes, primarily of orthopaedic
products, due to the Powered Instrument Acquisition, the Arthroscopy Acquisition
and increased demand for existing product lines.
Cost of sales increased to $131,403,000 in the nine months ended
September 1999 compared to $126,377,000 in the nine months ended September 1998.
In connection with purchase accounting for the December 31, 1997 acquisition of
Linvatec Corporation, the Company increased the acquired value of inventory by
$3,000,000 over its production cost. This inventory was sold during the quarter
ended March 1998 and served to increase cost of sales during the first quarter
of 1998 by $3,000,000. Similarly, in connection with the August 1999 Powered
Instrument Acquisition, the Company increased the acquired value of inventory by
$1,600,000. This inventory was sold during the quarter ended September 1999 and
served to increase cost of sales during the third quarter of 1999 by $1,600,000.
Excluding the impact of these non-recurring adjustments, cost of sales increased
to $129,782,000 in the first nine months of 1999 from $123,384,000 in the first
nine months of 1998, as a result of increased sales volumes. Excluding the
nonrecurring adjustments, the Company's gross margin percentage for the first
nine months of 1999 was 52.5% compared to 49.9% for the first nine months of
1998. The increase in gross margin percentage is primarily attributable to
higher sales volumes in the Company's orthopaedic product lines which carry
higher gross margins than certain of the Company's other product lines as well
as improved pricing resulting from the elimination of most of the fixed price
product distribution agreements with Zimmer discussed previously.
<PAGE>
Selling and administrative costs increased to $79,775,000 in the nine
months ended September 1999 as compared to $68,330,000 in the nine months ended
September 1998. The increase in selling and administrative expense is primarily
a result of additional selling expense associated with the increase in sales in
the nine months ended September 1999 as compared to the nine months ended
September 1998, including increased costs associated with the direct selling and
distribution of products distributed through Zimmer during the first half of
1998 and increased intangible amortization resulting from the Powered Instrument
Acquisition and the Arthroscopy Acquisition. As a result of these costs, as a
percentage of sales, selling and administrative expense increased to 29.2% in
the nine months ended September 1999 as compared to 27.7% in the nine months
ended September 1998.
Research and development expense was $8,833,000 in the nine months
ended September 1999 as compared to $8,587,000 in the nine months ended
September 1998. As a percentage of sales, research and development expense was
3.2% in the first nine months of 1999 as compared to 3.5% in the comparable 1998
period. The amount of research and development expense incurred in the nine
months ended September 1999 is consistent with the comparable 1998 period
representing the Company's ongoing efforts in this area; the decrease in nine
months ended September 1999 expense as a percentage of sales is primarily a
result of higher sales in the nine months ended September 1999 as compared to
the nine months ended September 1998.
Interest expense for the nine months ended September 1999 was
$23,952,000 compared to $22,990,000 in the nine months ended September 1998. As
part of the Powered Instrument Acquisition, the Company's existing credit
facility was amended in the third quarter of 1999 to provide for an additional
$40,000,000 loan commitment which was used to fund the acquisition purchase
price. The increase in interest expense is a result of these higher term loan
borrowings and higher average borrowings under the Company's revolving credit
facility during the nine months ended September 1999 as compared to the nine
months ended September 1998. The Company funded its Arthroscopy Acquisition
during the fourth quarter of 1998 through borrowings under the revolving credit
facility which resulted in the higher average borrowings. Offsetting the
interest on these increased borrowings was reduced interest expense on the
Company's term loans as a result of scheduled quarterly principal payments
totaling $17,268,000 through the nine months ended September 1999. (See
discussion under Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results of Operations).
During the first quarter of 1998, the Company completed an offering of
subordinated notes (the "Notes") 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 $2,451,000
($1,569,000 net of income taxes) were written-off as an extraordinary charge.
There was no extraordinary charge during the first nine months of 1999. (See
discussion under Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results of Operations).
Liquidity and Capital Resources
The Company's net working capital position increased $12,080,000 or
12.9% to $105,504,000 at September 1999 compared to $93,424,000 at December
1998. Net cash provided by operations was $19,464,000 for the first nine months
of 1999 compared to $14,039,000 for the first nine months of 1998. Operating
cash flow was positively impacted by higher net income, depreciation, and
<PAGE>
amortization in the nine months ended September 1999 as compared to the nine
months ended September 1998. Operating cash flow was also positively impacted by
an increase in accrued income taxes payable. Negatively impacting operating cash
flow in the first nine months of 1999 were increases in accounts receivable and
inventory and decreases in accounts payable, accrued interest and accrued
payroll. The increase in accounts receivable is primarily related to the
increase in sales; the increase in inventory is related to the Arthroscopy
Acquisition and Powered Instrument Acquisition and overall higher levels of
inventory on-hand. The increase in accrued income taxes payable and decreases in
accounts payable, accrued interest and accrued payroll are primarily related to
the timing of the payment of these liabilities.
Net cash used by investing activities for the nine months ended
September 1999 consisted of $38,224,000 in costs related to the Powered
Instrument Acquisition and $5,894,000 in capital expenditures. Net cash used by
investing activities for the nine months ended September 1998 consisted of
$9,965,000 in costs related to the Company's December 31, 1997 acquisition of
Linvatec Corporation from BMS and $9,924,000 in capital expenditures.
Financing activities during the nine months ended September 1999
consisted primarily of a $40,000,000 term loan used to fund the Powered
Instrument Acquisition, scheduled payments of $17,268,000 on the Company's
previously existing term loans and $3,000,000 in repayments on the Company's
revolving credit facility. Financing activities during the nine months ended
September 1998 involved the completion of the Notes offering in the aggregate
principal amount of $130,000,000; net proceeds from the offering amounting to
$126,100,000 were used to repay a portion of the Company's term loans under its
credit facility. Additionally, scheduled payments of $5,271,000 on the Company's
term loans were made.
The Company's term loans under its credit facility at September 30,
1999 aggregate $239,626,000, including a $40,000,000 term loan, due June 30,
2005, which was used to fund the Powered Instrument Acquisition purchase price
and related fees and expenses. The Company's term loans are repayable quarterly
over remaining terms of six years. The Company's credit facility also includes a
$100,000,000 revolving credit facility which expires December 2002, of which
$65,000,000 was available on September 30, 1999. The borrowings under the credit
facility carry interest rates based on a spread over LIBOR or an alternative
base interest rate. The covenants of the credit facility provide for increase
and decrease to this interest rate spread based on the operating results of the
Company. The weighted average interest rates at September 30, 1999 under the
term loans and the revolving credit facility were 7.51% and 7.31%, respectively.
Additionally, the Company is obligated to pay a fee of .375% 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 $100,000,000 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
certain indebtedness and 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 in the credit agreement.
The Notes are in aggregate principal amount of $130,000,000 and have a
maturity date of March 15, 2008. The Notes bear interest at 9.0% per annum which
is payable semi-annually. The indenture governing the 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 by each of the Company's
subsidiaries. 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 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.
Year 2000
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 were not Year 2000 ready
have been identified, upgraded and tested to ensure they function properly after
December 31, 1999. The Company has contacted its critical business partners to
ascertain their preparation for the Year 2000 issue. The costs of the Company's
Year 2000 assessment and remediation program have not been and are not expected
to be 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 and non-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.
<PAGE>
Foreign Operations
The Company's foreign operations are subject to special risks inherent
in doing business outside the United States, including governmental instability,
war and other international conflicts, civil and labor disturbances,
requirements of local ownership, partial or total expropriation,
nationalization, currency devaluation, foreign exchange controls and foreign
laws and policies, each of which may limit the movement of assets or funds or
result in the deprivation of contract rights or the taking of property without
fair compensation.
An additional risk with respect to the Company's European operations
relates to the conversion of certain European countries to a common currency
which began January 1, 1999 (the "Euro Conversion"). The Company has formed an
internal task force to evaluate the risks and implement any required actions
with respect to the Euro Conversion. Based on the analysis of this task force,
the Company does not believe that the costs to the Company to convert to a
common currency will be material. Additionally the Company does not believe that
there will be any material impact from a competitive point of view with respect
to the impact of the Euro Conversion on the sales of products.
<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 (included in EDGAR
filing only)
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 12, 1999 /s/Robert D. Shallish, Jr.
--------------------------
Robert D.Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
<PAGE>
Exhibit Index
Sequential
Page
Exhibit Number
------- ------
11 - Computations of weighted average
number of shares of common stock E-1
27 - Financial Data Schedule (included in EDGAR
filing only)
<TABLE>
<CAPTION>
EXHIBIT 11
Computation of weighted average number of shares of common stock
For the three For the nine
months ended September months ended September
---------------------- ----------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of period ................................... 15,077 15,275 15,037 15,158
Weighted average shares
issued and repurchased ................................ 25 1 28 70
------ ------ ------ ------
Shares used in the
calculation of basic EPS
(weighted average shares
outstanding) .......................................... 15,102 15,276 15,065 15,228
Effect of dilutive
securities ............................................ 259 333 235 363
------ ------ ------ ------
Shares used in the
calculation of diluted
EPS ................................................... 15,361 15,609 15,300 15,591
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,817
<SECURITIES> 0
<RECEIVABLES> 70,606
<ALLOWANCES> (1,715)
<INVENTORY> 94,362
<CURRENT-ASSETS> 172,549
<PP&E> 88,920
<DEPRECIATION> (31,984)
<TOTAL-ASSETS> 662,142
<CURRENT-LIABILITIES> 67,045
<BONDS> 405,504
0
0
<COMMON> 153
<OTHER-SE> 202,002
<TOTAL-LIABILITY-AND-EQUITY> 662,142
<SALES> 91,712
<TOTAL-REVENUES> 91,712
<CGS> 45,036
<TOTAL-COSTS> 45,036
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,212
<INCOME-PRETAX> 8,770
<INCOME-TAX> 3,157
<INCOME-CONTINUING> 5,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,613
<EPS-BASIC> .37
<EPS-DILUTED> .36
</TABLE>
