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 March 31, 2000 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)
(Registrant's telephone number, including area code) (315) 797-8375
` ----------------
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
May 3, 2000 is 15,322,718 shares.
<PAGE>
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION
Item Number Page
Item 1. Financial Statements
- Consolidated Statements of Income 1
- Consolidated Balance Sheets 2
- Consolidated Statements of Shareholders'
Equity 3
- Consolidated Statements of Cash Flows 4
- Notes to Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
<PAGE>
Item 1.
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 1999 and 2000
(in thousands except per share amounts)
(unaudited)
1999 2000
---- ----
<S> <C> <C>
Net sales........................................ $90,869 $101,913
------- --------
Cost and expenses:
Cost of sales.................................. 43,542 48,661
Selling and administrative..................... 26,566 29,864
Research and development....................... 2,956 3,406
------- -------
Total operating expenses................ 73,064 81,931
------- -------
Income from operations........................... 17,805 19,982
Interest expense, net............................ (7,926) (8,405)
------- -------
Income before income taxes....................... 9,879 11,577
Provision for income taxes....................... (3,556) (4,168)
------- -------
Net income....................................... $ 6,323 $ 7,409
======= =======
Per share data:
Net income
Basic................................... $ .42 $ .48
Diluted................................. .41 .48
Weighted average common shares
Basic................................... 15,174 15,286
Diluted................................. 15,570 15,559
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
ASSETS
(unaudited)
December March
1999 2000
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 3,747 $ 4,228
Accounts receivable, net......................... 76,413 79,357
Inventories, net (Note 3)........................ 89,681 90,978
Deferred income taxes............................ 1,453 1,453
Prepaid expenses and other current assets........ 5,423 5,399
------- --------
Total current assets...................... 176,717 181,415
Property, plant and equipment, net................. 57,834 59,328
Goodwill, net...................................... 223,174 221,648
Patents, trademarks, and other assets, net......... 204,436 202,553
------- --------
Total assets.............................. $662,161 $664,944
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................ $ 32,875 $ 33,673
Accrued interest................................. 4,588 3,145
Accounts payable................................. 16,518 19,997
Income taxes payable............................. 226 3,375
Accrued payroll and withholdings................. 9,658 7,227
Other current liabilities........................ 3,326 2,877
------- --------
Total current liabilities................. 67,191 70,294
Long-term debt..................................... 361,794 353,766
Deferred income taxes.............................. 3,330 3,330
Other long-term liabilities........................ 18,585 18,818
------- --------
Total liabilities.......................... 450,900 446,208
------- --------
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 shares authorized; 15,303,806 and
15,322,718 shares issued and outstanding in
1999 and 2000, respectively.................. 153 153
Paid-in capital.................................. 127,394 127,623
Retained earnings................................ 84,520 91,929
Accumulated other comprehensive income........... (387) (550)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Less 25,000 shares of common stock in treasury,
at cost........................................ (419) (419)
-------- --------
211,261 218,736
Total liabilities and shareholders' equity... $662,161 $664,944
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended March 1999 and 2000
(in thousands)
(unaudited)
1999 2000
---- ----
<S> <C> <C>
Common stock at beginning and
end of period................................ $ 152 $ 153
-------- --------
Paid-in capital
Balance at beginning of period............... 125,039 127,394
Exercise of stock options.................... 206 229
-------- --------
Balance at end of period..................... 125,245 127,623
-------- --------
Retained earnings
Balance at beginning of period............... 57,361 84,520
Net income (A)............................... 6,323 7,409
-------- --------
Balance at end of period..................... 63,684 91,929
-------- --------
Accumulated other comprehensive income
Balance at beginning of period
Cumulative foreign currency translation
adjustments............................. 35 (387)
Other comprehensive income
Foreign currency translation adjustments(B) (46) (163)
-------- --------
Balance at end of period
Cumulative foreign currency translation
adjustments............................. (11) (550)
-------- --------
Treasury stock at beginning
and end of period.......................... (419) (419)
-------- --------
Total shareholders' equity..................... $188,651 $218,736
======== ========
Total comprehensive income (A + B)............. $ 6,277 $ 7,246
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 1999 and 2000
(in thousands)
(unaudited)
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,323 $ 7,409
-------- --------
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 2,176 2,306
Amortization 3,913 4,479
Increase (decrease) in cash flows
from changes in assets and liabilities:
Accounts receivable (2,133) (3,107)
Inventories (4,996) (1,888)
Prepaid expenses and
other current assets (326) 24
Accounts payable 1,119 3,479
Income taxes payable 5,001 3,149
Accrued payroll and withholdings (3,220) (2,431)
Accrued interest (3,033) (1,443)
Other current liabilities 323 (449)
Other assets/liabilities, net 952 (162)
-------- --------
(224) 3,957
-------- --------
Net cash provided by operating activities 6,099 11,366
-------- --------
Cash flows from investing activities:
Acquisition of property, plant, and equipment (3,196) (3,884)
-------- --------
Net cash used by investing activities (3,196) (3,884)
-------- --------
Cash flows from financing activities:
Proceeds of long term debt....................... 900 -
Borrowings under revolving
credit facility................................ - 1,000
Proceeds from issuance of common stock........... 206 229
Payments on long-term debt....................... (5,749) (8,230)
------- -------
Net cash used by financing
activities.................................. (4,643) (7,001)
------- -------
Net increase (decrease) in cash
and cash equivalents............................ (1,740) 481
Cash and cash equivalents at beginning of period... 5,906 3,747
------- -------
Cash and cash equivalents at end of period......... $ 4,166 $ 4,228
======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Operations
The consolidated financial statements include the accounts of CONMED
Corporation and its subsidiaries (the "Company"). All intercompany accounts and
transactions have been eliminated. CONMED Corporation is a medical technology
company specializing in instruments and implants for arthroscopic sports
medicine, and powered surgical instruments, such as drills and saws, for
orthopaedic, ENT and neuro-surgery. The Company is also a leading developer,
manufacturer and supplier of advanced medical devices, including RF
electrosurgery systems used in all types of surgery, ECG electrodes for heart
monitoring, and minimally invasive surgical devices. 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. The Company's
business is organized, managed and internally reported as a single segment,
since its product offerings have similar economic, operating and other related
characteristics.
Note 2 - Interim financial information
The statements for the three months ended March 1999 and 2000 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 2000 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 months ended March 2000 are not necessarily
indicative of the results of operations to be expected for any other quarter nor
for the year ending December 2000. The consolidated financial statements and
notes thereto should be read in conjunction with the financial statements and
notes for the year ended December 1999 included in the Company's Annual Report
to the Securities and Exchange Commission on Form 10-K.
Note 3 - Inventories
The components of inventory are as follows (in thousands):
December March
1999 2000
---- ----
Raw materials......... $35,651 $34,156
Work-in-process....... 9,803 9,427
Finished goods........ 44,227 47,395
------- -------
Total........ $89,681 $90,978
======= =======
5
<PAGE>
Note 4 - Subsidiary Guarantees
The Company's credit facility and subordinated notes (the "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 March
-------- -----
1999 2000
---- ----
Current assets................................. $117,541 $125,262
Non-current assets............................. 385,363 382,629
Current liabilities............................ 21,921 24,304
Non-current liabilities........................ 355,012 341,635
For the Three
Months Ended March
------------------
1999 2000
---- ----
Revenues....................................... $ 69,268 81,926
Operating income............................... 14,969 16,174
Net income..................................... 4,495 4,972
Note 5 - Business Acquisitions
On June 29, 1999, the Company agreed to purchase certain assets of the
powered surgical instrument business of Minnesota Mining and Manufacturing
Company ("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, which was funded through borrowings under the
Company's credit facility. 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.
6
<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; 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 March 2000 compared to three months ended March 1999
Sales for the quarter ended March 2000 were $101,913,000, an increase
of 12.2% compared to sales of $90,869,000 in the same quarter a year ago. For
the quarter ended March 2000, arthroscopy sales grew 7.0% to $39.0 million and
powered surgical instruments sales grew 62.7% to $29.2 million. Of the total
increase in powered surgical instrument sales, 17.8% was due to internal growth
while 44.9% was due to the Powered Instrument Acquisition in August 1999.
Electrosurgery and patient care lines had sales of $33.7 million in the first
quarter of 2000, a decline of 7.5% from a year prior.
Cost of sales increased to $48,661,000 in the current quarter compared
to $43,542,000 in the same quarter a year ago as a result of the increased sales
volumes described above. The Company's gross margin percentage for the first
quarter of 2000 was 52.3% compared to 52.1% for the first quarter of 1999. The
increase in gross margin percentage is primarily attributable to increased sales
volumes in the Company's arthroscopy and powered surgical instrument product
lines which carry higher gross margins than certain of the Company's other
product lines.
Selling and administrative costs increased to $29,864,000 in the first
quarter of 2000 as compared to $26,566,000 in the first quarter of 1999. The
increase in selling and administrative expense is primarily a result of
additional selling expense associated with the increase in sales in the first
quarter of 2000. As a percentage of sales, selling and administrative expense
increased slightly to 29.3% in the first quarter of 2000 as compared to 29.2% in
the first quarter of 1999.
Research and development expense was $3,406,000 in the first quarter of
2000 as compared to $2,956,000 in the first quarter of 1999. As a percentage of
sales, research and development expense remained consistent at 3.3% in the first
quarter of 2000 and 1999, representing the Company's ongoing efforts in this
area.
Interest expense for the first quarter of 2000 was $8,405,000 compared
to $7,926,000 in the first quarter of 1999. In conjunction with 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,
offset by lower interest expense as a result of a net decrease in borrowings
under the Company's term loan and revolving credit facilities at March 2000 as
compared to March 1999 of $32,584,000 (See discussion under Liquidity and
Capital Resources section of Management's Discussion and Analysis of Financial
7
<PAGE>
Condition and Results of Operations).
Liquidity and Capital Resources
The Company's net working capital position increased $1,595,000 or 1.5%
to $111,121,000 at March 2000 compared to $109,526,000 at December 1999. Net
cash provided by operations was $11,366,000 for the first three months of 2000
compared to $6,099,000 for the first three months of 1999. Operating cash flow
was positively impacted by higher net income, depreciation, and amortization in
the three months ended March 2000 as compared to the three months ended March
1999. Operating cash flow was also positively impacted by an increase in
accounts payable and accrued income taxes. Negatively impacting operating cash
flow in the first three months of 2000 were increases in accounts receivable and
inventory and decreases in accrued interest and accrued payroll. The increase in
accounts receivable and inventory is primarily related to the increase in sales.
The increase in accounts payable and accrued income taxes and decreases in
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 three months ended March
2000 and 1999 consisted of $3,884,000 and $3,196,000, respectively in capital
expenditures.
Financing activities during the three months ended March 2000 consisted
primarily of scheduled payments of $8,230,000 on the Company's term loans and
$1,000,000 in borrowings on the Company's revolving credit facility. Financing
activities during the three months ended March 1999 consisted primarily of
scheduled payments of $5,749,000 on the Company's term loans.
The Company's term loans under its credit facility at March 31, 2000
aggregate $225,584,000. The Company's term loans are repayable quarterly over
remaining terms of approximately five years. The Company's credit facility also
includes a $100,000,000 revolving credit facility which expires December 2002,
of which $69,000,000 was available on March 31, 2000. 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 March 31, 2000
under the term loans and the revolving credit facility were 7.90% and 7.78%,
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%. There were no material changes
in the Company's market risk during the three months ended March 2000. For a
detailed discussion of market risk, see the Company's Form 10-K for the year
ended December 31, 1999, Part II, Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
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. Mandatory
prepayments are to be applied first to the prepayment of the term loans and then
to reduce borrowings under the revolving credit facility.
8
<PAGE>
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.
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.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description of Instrument
----------- -------------------------
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
10
<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: May 10, 2000
/s/ Robert D. Shallish, Jr.
---------------------------
Robert D. Shallish, Jr.
Vice President - Finance
(Principal Financial Officer)
11
<PAGE>
Exhibit Index
Sequential
Page
Exhibit Number
11 - Computations of weighted average E-1
number of shares of common stock
27 - Financial Data Schedule (included in EDGAR
filing only)
12
EXHIBIT 11
Computation of weighted average number of shares of common stock
For the three months ended March
--------------------------------
(in thousands)
1999 2000
Shares outstanding at beginning of period
(net of 25,000 shares held in treasury).. 15,158 15,279
Weighted average shares issued............. 16 7
------ ------
Shares used in the calculation of
Basic EPS (weighted average shares
outstanding)............................ 15,174 15,286
Effect of dilutive securities.... ......... 396 273
------ ------
Shares used in the calculation of
Diluted EPS.............................. 15,570 15,559
====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,228
<SECURITIES> 0
<RECEIVABLES> 80,751
<ALLOWANCES> (1,394)
<INVENTORY> 90,978
<CURRENT-ASSETS> 181,415
<PP&E> 95,938
<DEPRECIATION> (36,610)
<TOTAL-ASSETS> 664,944
<CURRENT-LIABILITIES> 70,294
<BONDS> 387,439
0
0
<COMMON> 153
<OTHER-SE> 218,583
<TOTAL-LIABILITY-AND-EQUITY> 664,944
<SALES> 101,913
<TOTAL-REVENUES> 101,913
<CGS> 48,661
<TOTAL-COSTS> 48,661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,405
<INCOME-PRETAX> 11,577
<INCOME-TAX> 4,168
<INCOME-CONTINUING> 7,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,409
<EPS-BASIC> .48
<EPS-DILUTED> .48
</TABLE>
